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EXCHANGE COMMISSION**\n\n**Washington,\nD.C. 20549**\n\n** **\n\n**FORM\n10-Q**\n\n** **\n\n(Mark\nOne)\n\n \n\n☒\nQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934\n\n \n\nFor\nthe quarterly period ended **March 31, 2026**\n\n \n\nor\n\n \n\n☐\nTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934\n\n \n\nFor\nthe transition period from ________________ to ________________\n\n \n\nCommission\nfile number **001-40992**\n\n \n\n**SURGEPAYS,\nINC.**\n\n(Exact\nname of registrant as specified in its charter)\n\n \n\n**Nevada**\n \n**98-0550352**\n\n(State\nor other jurisdiction of\n\nincorporation\nor organization)\n\n \n\n(I.\nR. S. Employer\n\nIdentification\nNo.)\n\n \n\n**3124 Brother\nBlvd, Suite 104**\n \n \n\n**Bartlett\nTN**\n \n**38133**\n\n(Address of principal executive\noffices)\n \n(Zip Code)\n\n \n\n**901-302-9587**\n\n(Registrant’s\ntelephone number, including area code)\n\n \n\n**Not\napplicable**\n\n(Former\nname, former address, and former fiscal year, if changed since last report)\n\n \n\nSecurities\nregistered pursuant to Section 12(b) of the Act:\n\n \n\nTitle\nof each class\n \nTrading\nSymbol(s)\n \nName\nof each exchange on which registered\n\nCommon Stock\n \nSURG\n \n\nThe\nNasdaq Stock Market LLC\n\n(Nasdaq\nCapital Market)\n\n \n\nIndicate\nby check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange\nAct of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)\nhas been subject to such filing requirements for the past 90 days. Yes ☒ No ☐\n\n \n\nIndicate\nby check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule\n405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant\nwas required to submit and post such files). Yes ☒ No ☐\n\n \n\nIndicate\nby check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting\ncompany, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”\n“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.\n\n \n\nLarge accelerated filer ☐\nAccelerated filer ☐\n\nNon-accelerated filer ☒\nSmaller reporting company ☒\n\n \nEmerging growth company ☐\n\n \n\nIf\nan emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying\nwith any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ☐\n\n \n\nIndicate\nby check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐ No ☒\n\n \n\nThe\nnumber of shares of the registrant’s common stock outstanding as of May 20, 2026 was 25,121,895\nshares.\n\n \n\n \n\n \n\n \n\n \n\n \n\n**SurgePays,\nInc. and Subsidiaries**\n\n \n\n \n \nPage(s)\n\n \n \n \n\n[Consolidated Balance Sheets (Unaudited)](#bs_001)\n \n3\n\n \n \n \n\n[Consolidated Statements of Operations (Unaudited)](#bs_002)\n \n4\n\n \n \n \n\n[Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited)](#bs_003)\n \n5\n- 6\n\n \n \n \n\n[Consolidated Statements of Cash Flows (Unaudited)](#bs_004)\n \n7\n\n \n \n \n\n[Notes to Consolidated Financial Statements (Unaudited)](#bs_005)\n \n8\n- 68\n\n \n\n2\n\n \n\n \n\n**SurgePays,\nInc. and Subsidiaries**\n\n**Consolidated\nBalance Sheets**\n\n \n\n  \nMarch 31, 2026  \nDecember 31, 2025 \n\n  \n(Unaudited)  \n  \n\n  \n   \n  \n\nAssets \n    \n   \n\n  \n    \n   \n\nCurrent Assets \n    \n   \n\nCash and cash equivalents \n$1,991,166  \n$1,731,400 \n\nRestricted cash - line of credit reserve \n 424,995  \n 281,811 \n\nAccounts receivable - net \n 5,041,837  \n 4,045,162 \n\nInventory \n 339,570  \n 339,570 \n\nPrepaids and other \n 410,742  \n 581,823 \n\nTotal Current Assets \n 8,208,310  \n 6,979,766 \n\n  \n    \n   \n\nProperty and equipment - net \n 376,678  \n 403,517 \n\n  \n    \n   \n\nOther Assets \n    \n   \n\nIntangibles - net \n 655,776  \n 819,153 \n\nOperating lease - right of use asset - net \n 260,694  \n 313,410 \n\nTotal Other Assets \n 916,470  \n 1,132,563 \n\n  \n    \n   \n\nTotal Assets \n$9,501,458  \n$8,515,846 \n\n  \n    \n   \n\nLiabilities and Stockholders’ Deficit \n    \n   \n\n  \n    \n   \n\nCurrent Liabilities \n    \n   \n\nAccounts payable and accrued expenses \n$17,514,013  \n$10,219,011 \n\nAccounts payable and accrued expenses - related party \n 159,135  \n 117,546 \n\nAccounts payable and accrued expenses  \n 159,135  \n 117,546 \n\nOperating lease liability \n 226,225  \n 219,997 \n\nNotes payable \n 2,483,335  \n 1,834,008 \n\nNote payable - related party \n 1,730,796  \n 2,730,796 \n\nNote payable \n 1,730,796  \n 2,730,796 \n\nConvertible notes payable - net \n 7,744,342  \n 3,068,878 \n\nDerivative liabilities \n 184,983  \n - \n\nTotal Current Liabilities \n 30,042,829  \n 18,190,236 \n\n  \n    \n   \n\nLong Term Liabilities \n    \n   \n\nNotes payable - SBA government \n 455,919  \n 458,334 \n\nOperating lease liability \n 40,093  \n 99,235 \n\nConvertible notes payable - net \n 2,830,585  \n 5,170,860 \n\nTotal Long Term Liabilities \n 3,326,597  \n 5,728,429 \n\n  \n    \n   \n\nTotal Liabilities \n 33,369,426  \n 23,918,665 \n\n  \n    \n   \n\nStockholders’ Deficit \n    \n   \n\nCommon stock, $0.001 par value, 500,000,000 shares authorized 24,886,775 and 21,847,927 shares\nissued and 24,190,822 and 21,151,974 shares outstanding, at March 31, 2026 and December 31, 2025, respectively \n 24,890  \n 21,852 \n\nAdditional paid-in capital \n 86,829,583  \n 83,246,736 \n\nTreasury stock - at cost (695,953 and 695,953 shares, respectively) \n (1,631,966) \n (1,631,966)\n\nAccumulated deficit \n (109,035,180) \n (96,984,297)\n\nStockholders’ equity (deficit) \n (23,812,673) \n (15,347,675)\n\nNon-controlling interest \n (55,295) \n (55,144)\n\nTotal Stockholders’ Deficit \n (23,867,968) \n (15,402,819)\n\n  \n    \n   \n\nTotal Liabilities and Stockholders’ Deficit \n$9,501,458  \n$8,515,846 \n\n \n\nThe\naccompanying notes are an integral part of these unaudited consolidated financial statements\n\n \n\n3\n\n \n\n \n\n**SurgePays,\nInc. and Subsidiaries**\n\n**Consolidated\nStatements of Operations**\n\n**(Unaudited)**\n\n \n\n  \n2026  \n2025 \n\n  \nFor the Three Months Ended March 31, \n\n  \n2026  \n2025 \n\n  \n   \n  \n\nRevenues, net \n$15,983,983  \n$10,577,429 \n\n  \n    \n   \n\nCosts and expenses \n    \n   \n\nCost of revenues \n 23,681,432  \n 13,519,775 \n\nGeneral and administrative expenses \n 3,501,918  \n 4,637,556 \n\nTotal costs and expenses \n 27,183,350  \n 18,157,331 \n\n  \n    \n   \n\nLoss from operations \n (11,199,367) \n (7,579,902)\n\n  \n    \n   \n\nOther income (expense): \n    \n   \n\nInterest expense (including amortization of debt discount) \n (881,908) \n (119,434)\n\nOther income \n -  \n 7,140 \n\nInterest income \n -  \n 56,903 \n\nChange in fair value of derivative liabilities \n 30,241  \n - \n\nTotal other income (expense) - net \n (851,667) \n (55,391)\n\n  \n    \n   \n\nNet loss before provision for income taxes \n (12,051,034) \n (7,635,293)\n\n  \n    \n   \n\nProvision for income tax benefit (expense) \n -  \n - \n\n  \n    \n   \n\nNet loss including non-controlling interest \n (12,051,034) \n (7,635,293)\n\n  \n    \n   \n\nNon-controlling interest \n (151) \n (209)\n\n  \n    \n   \n\nNet loss available to common stockholders \n$(12,050,883) \n$(7,635,084)\n\n  \n    \n   \n\nLoss per share - attributable to common stockholders \n    \n   \n\nBasic \n$(0.51) \n$(0.38)\n\nDiluted \n$(0.51) \n$(0.38)\n\n  \n    \n   \n\nWeighted average number of shares outstanding - attributable to common stockholders \n    \n   \n\nBasic \n 23,703,775  \n 20,068,929 \n\nDiluted \n 23,703,775  \n 20,068,929 \n\n \n\n The accompanying notes are an integral part of these unaudited consolidated financial statements\n\n \n\n4\n\n \n\n \n\n**SurgePays,\nInc. and Subsidiaries****Consolidated\nStatement of Changes in Stockholders’ Deficit****For\nthe Three Months Ended March 31, 2026****(Unaudited)**\n\n \n\n  \n   \n   \n   \n   \n   \n   \n   \n  \n\n  \nCommon Stock  \n\nAdditional\n\nPaid-in\n  \nAccumulated  \nTreasury Stock  \nNon-Controlling  \n\nTotal\n\nStockholders’\n \n\n  \nShares  \nAmount  \nCapital  \nDeficit  \nShares  \nAmount  \nInterest  \nDeficit \n\n  \n   \n   \n   \n   \n   \n   \n   \n  \n\nDecember 31, 2025 \n 21,847,927  \n$21,852  \n$83,246,736  \n$(96,984,297) \n 695,953  \n$(1,631,966) \n$(55,144) \n$(15,402,819)\n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nStock issued for cash \n 2,007,323  \n 2,007  \n 2,512,368  \n -  \n -  \n -  \n -  \n 2,514,375 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nCash paid as direct offering costs \n -  \n -  \n (375,000) \n -  \n -  \n -  \n -  \n (375,000)\n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nStock issued for services \n 200,000  \n 200  \n 333,800  \n -  \n -  \n -  \n -  \n 334,000 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nRecognition of stock based compensation - employees \n -  \n -  \n 7,787  \n -  \n -  \n -  \n -  \n 7,787 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nRecognition of stock based compensation - related parties \n -  \n -  \n 49,895  \n -  \n -  \n -  \n -  \n 49,895 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nDebt discount - convertible notes payable - stock issued \n 31,525  \n 31  \n 54,797  \n -  \n -  \n -  \n -  \n 54,828 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nConversion of debt to common stock - related party \n 800,000  \n 800  \n 706,400  \n -  \n -  \n -  \n -  \n 707,200 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nDebt forgiveness - related party \n -  \n -  \n 292,800  \n -  \n -  \n -  \n -  \n 292,800 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nNon-controlling interest \n -  \n -  \n -  \n -  \n -  \n -  \n (151) \n (151)\n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nNet loss \n -  \n -  \n -  \n (12,050,883) \n -  \n -  \n -  \n (12,050,883)\n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nMarch 31, 2026 \n 24,886,775  \n$24,890  \n$86,829,583  \n$(109,035,180) \n 695,953  \n$(1,631,966) \n$(55,295) \n$(23,867,968)\n\n \n\n The accompanying notes are an integral part of these unaudited consolidated financial statements\n\n \n\n5\n\n \n\n \n\n**SurgePays,\nInc. and Subsidiaries**\n**Consolidated\nStatement of Changes in Stockholders’ Equity**\n**For\nthe Three Months Ended March 31, 2025**\n**(Unaudited)**\n\n \n\n  \nCommon Stock  \n\nAdditional\n\nPaid-in\n  \nAccumulated  \nTreasury Stock  \nNon-Controlling  \n\nTotal\n\nStockholders’\n \n\n  \nShares  \nAmount  \nCapital  \nDeficit  \nShares  \nAmount  \nInterest  \nEquity \n\n  \n   \n   \n   \n   \n   \n   \n   \n  \n\nDecember 31, 2024 \n 20,431,549  \n$20,435  \n$76,842,878  \n$(60,915,427) \n 362,620  \n$(631,967) \n$(54,306) \n$15,261,613 \n\nBalance \n 20,431,549  \n$20,435  \n$76,842,878  \n$(60,915,427) \n 362,620  \n$(631,967) \n$(54,306) \n$15,261,613 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nRecognition of stock based compensation - related parties \n -  \n -  \n 155,119  \n -  \n -  \n -  \n -  \n 155,119 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nNon-controlling interest \n -  \n -  \n -  \n -  \n -  \n -  \n (209) \n (209)\n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nNet loss \n -  \n -  \n -  \n (7,635,084) \n -  \n -  \n -  \n (7,635,084)\n\nMarch 31, 2025 \n 20,431,549  \n$20,435  \n$76,997,997  \n$(68,550,511) \n 362,620  \n$(631,967) \n$(54,515) \n$7,781,439 \n\nBalance \n 20,431,549  \n$20,435  \n$76,997,997  \n$(68,550,511) \n 362,620  \n$(631,967) \n$(54,515) \n$7,781,439 \n\n \n\nThe accompanying notes are an integral part of these unaudited consolidated financial statements\n\n \n\n6\n\n \n\n \n\n**SurgePays,\nInc and Subsidiaries**\n\n**Consolidated Statements of Cash Flows**\n\n**(Unaudited)**\n\n \n\n  \n2026  \n2025 \n\n  \nFor the Three Months Ended March 31, \n\n  \n2026  \n2025 \n\n  \n   \n  \n\nOperating activities \n    \n   \n\nNet loss - including non-controlling interest \n$(12,051,034) \n$(7,635,293)\n\nAdjustments to reconcile net loss to net cash used in operations \n    \n   \n\nDepreciation and amortization \n 190,216  \n 249,574 \n\nAmortization of right-of-use assets \n 52,716  \n 61,279 \n\nAmortization of debt discount/debt issue costs \n 437,778  \n - \n\nStock issued for services \n 334,000  \n - \n\nRecognition of stock based compensation - related parties \n -  \n 155,119 \n\nRecognition of share based compensation - options \n 7,787  \n - \n\nRecognition of share based compensation - options - related party \n 49,895  \n - \n\nRecognition of share based compensation - options  \n 49,895  \n - \n\nChange in fair value of derivative liabilities \n (30,241) \n - \n\nChanges in operating assets and liabilities \n    \n   \n\n(Increase) decrease in \n    \n   \n\nAccounts receivable \n (996,674) \n 513,320 \n\nPrepaids and other \n 171,081  \n 113,764 \n\nIncrease (decrease) in \n    \n   \n\nAccounts payable and accrued expenses \n 7,295,002  \n (168,375)\n\nAccounts payable and accrued expenses - related party \n 41,589  \n (192,845)\n\nAccounts payable and accrued expenses  \n 41,589  \n (192,845)\n\nOperating lease liability \n (52,914) \n (60,027)\n\nNet cash used in operating activities \n (4,550,799) \n (6,963,484)\n\n  \n    \n   \n\nInvesting activities \n    \n   \n\nPurchase of leasehold improvements \n -  \n (18,590)\n\nNet cash used in investing activities \n -  \n (18,590)\n\n  \n    \n   \n\nFinancing activities \n    \n   \n\nProceeds from common stock issued for cash \n 2,514,375  \n - \n\nCash paid as direct offering costs - common stock \n (375,000) \n - \n\nProceeds from issuance of notes payable \n 954,272  \n - \n\nRepayments of notes payable \n (347,983) \n - \n\nProceeds from issuance of convertible notes payable \n 2,225,000  \n - \n\nCash paid as direct offering costs - convertibles note payable \n (14,500) \n - \n\nRepayments of loans - related party \n -  \n (407,776)\n\nRepayments on notes payable - SBA government \n (2,415) \n - \n\nTreasury shares repurchased (share buy-backs) \n -  \n (2,769)\n\nNet cash provided by financing activities \n 4,953,749  \n (410,545)\n\n  \n    \n   \n\nNet decrease in cash, cash equivalents and restricted cash \n 402,950  \n (7,392,619)\n\n  \n    \n   \n\nCash, cash equivalents and restricted cash - beginning of period \n 2,013,211  \n 12,790,389 \n\n  \n    \n   \n\nCash, cash equivalents and restricted cash - end of period \n$2,416,161  \n$5,397,770 \n\n  \n    \n   \n\nSupplemental disclosure of cash flow information \n    \n   \n\nCash paid for interest \n$38,472  \n$908,760 \n\nCash paid for income tax \n$-  \n$- \n\n  \n    \n   \n\nSupplemental disclosure of non-cash investing and financing activities \n    \n   \n\nConversion of debt to common stock - related party \n$707,200  \n$- \n\nDebt forgiveness - related party \n$292,800  \n$- \n\nDebt discount - convertible notes payable - original issue discount \n$83,333  \n$- \n\nDebt discount - convertible notes payable - issuance of common stock \n$54,828  \n$- \n\nDebt discount - convertible notes payable - stated interest \n$66,667  \n$- \n\nDebt discount - convertible note payable - issuance of warrants (derivative liabilities) \n$215,223  \n$- \n\nStock issued in settlement of accounts payable \n$-  \n$- \n\nReclassification of accrued interest - related party to note payable - related party \n$-  \n$- \n\nExercise of warrants - cashless \n$-  \n$- \n\nTermination of ROU operating lease assets and liabilities \n$-  \n$- \n\nRight-of-use asset obtained in exchange for new operating lease liability \n$-  \n$- \n\n \n\n7\n\n \n\n** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n** **\n\n**Note\n1 - Organization and Nature of Operations**\n\n** **\n\n**Organization\nand Nature of Operations**\n\n \n\nSurgePays,\nInc. (“SurgePays,” “we,” or the “Company”) is a telecommunications and financial technology company\nfocused on delivering wireless connectivity and point-of-sale solutions to underserved and value-conscious communities across the United\nStates. The Company’s mission is to enhance access to essential digital services where people live, shop, and work.\n\n \n\nWe\noperate through three primary business segments: (1) our MVNO wireless brands, (2) our MVNE enablement platform (HERO), and (3) our point-of-sale\n(POS) and fintech services. These businesses are supported through subsidiaries including SurgePhone Wireless, LLC, SurgePays Fintech,\nInc., ECS Prepaid, LLC, and Torch Wireless, LLC, among others.\n\n \n\nThe\nCompany and its subsidiaries are organized as follows:\n\n Schedule\nof Subsidiaries\n\n**Company\nName (Active)**\n \n**Incorporation\nDate**\n \n**State\nof Incorporation**\n \n**Segment**\n\nSurgePays,\nInc.\n \nAugust\n18, 2006\n \nNevada\n \nCorporate\nParent\n\nSurge\nBlockchain, LLC\n \nJanuary\n29, 2009\n \nNevada\n \nOther\nCorporate Overhead\n\nECS\nPrepaid, LLC\n \nJune\n9, 2009\n \nMissouri\n \nPoint-of-Sale\nand Prepaid Services\n\nTorch\nWireless\n \nJanuary\n29, 2019\n \nWyoming\n \nMobile\nVirtual Network Operators\n\nSurgePays\nFintech, Inc.\n \nAugust\n22, 2019\n \nNevada\n \nPoint-of-Sale\nand Prepaid Services\n\nSurgePhone\nWireless, LLC\n \nAugust\n29, 2019\n \nNevada\n \nMobile\nVirtual Network Operators\n\n \n\nAll\nof the following entities have nominal operations.\n\n \n\n**Company\nName (Inactive)**\n \n**Incorporation\nDate**\n \n**State\nof Incorporation**\n \n \n\nElectronic\nCheck Services, Inc.\n \nMay\n19, 1999\n \nMissouri\n \n \n\nCentral\nStates Legal Services, Inc.\n \nAugust\n1, 2003\n \nMissouri\n \n \n\nKSIX,\nLLC\n \nSeptember\n14, 2011\n \nNevada\n \n \n\nDigitizeIQ,\nLLC\n \nJuly\n23, 2014\n \nIllinois\n \n \n\nKSIX\nMedia, Inc.\n \nNovember\n5, 2014\n \nNevada\n \n \n\nSurge\nPayments, LLC\n \nDecember\n17, 2018\n \nNevada\n \n \n\nLogicsIQ,\nInc.\n \nOctober\n2, 2018\n \nNevada\n \nOther\nCorporate Overhead\n\nInjury\nSurvey, LLC\n \nJuly\n28, 2020\n \nNevada\n \nOther\nCorporate Overhead\n\n \n\n**Basis\nof Presentation**\n\n** **\n\nThe\naccompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted\nin the United States of America for interim financial statements (“U.S. GAAP”) and with the instructions to Form 10-Q and\nArticle 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain\nall information and footnotes required by accounting principles generally accepted in the United States of America for annual financial\nstatements.\n\n \n\n8\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nIn\nthe opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all of the adjustments\nnecessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2026 and the\nresults of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2026 are\nnot necessarily indicative of the operating results for the full fiscal year or any future period.\n\n \n\nThese\nunaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included\nin the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on April 15, 2026.\n\n \n\nManagement\nacknowledges its responsibility for the preparation of the accompanying unaudited consolidated financial statements which reflect all\nadjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated\nfinancial position and the consolidated results of its operations for the periods presented.\n\n** **\n\n**Nasdaq\nContinued Listing Compliance**\n\n** **\n\nIn\nMarch 2026, the Company received two notices from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”)\nindicating non-compliance with certain continued listing requirements.\n\n \n\nOn\nMarch 18, 2026, the Company was notified that it no longer meets the minimum market value of listed securities (“MVLS”) requirement\nof $35,000,000. On March 23, 2026, the Company received a separate notice of non-compliance with the $1.00 minimum bid price requirement.\nThese notices have no immediate effect on the listing or trading of the Company’s common stock on Nasdaq.\n\n \n\nUnder\nNasdaq listing rules, the Company has 180 calendar days to regain compliance with each requirement - until September 14, 2026 for the\nMVLS deficiency and September 21, 2026 for the minimum bid price deficiency. Compliance with the MVLS requirement will be regained if\nthe market value of listed securities closes at or above $35,000,000 for at least ten consecutive business days during the compliance\nperiod. Compliance with the minimum bid price requirement will be regained if the closing bid price of the Company’s common stock\nis at or above $1.00 per share for at least ten consecutive business days during the applicable period.\n\n \n\nIf\nthe Company does not regain compliance with the minimum bid price requirement within the initial 180-day period, it may be eligible for\nan additional 180-day compliance period, subject to meeting certain other continued listing standards and notifying Nasdaq of its intention\nto cure the deficiency.\n\n \n\n9\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nIf\nthe Company’s common stock were ultimately delisted from Nasdaq, it could have a material adverse effect on the liquidity and market\nprice of its shares, its ability to raise equity financing, its access to the public capital markets, and its ability to provide equity\nincentives to employees. The Company is actively monitoring its compliance status and intends to pursue all available options to regain\ncompliance within the applicable cure periods.\n\n** **\n\n**Going\nConcern, Liquidity and Management’s Plans**\n\n \n\nAs\nreflected in the accompanying consolidated financial statements, for the three months ended March 31, 2026, the Company had:\n\n \n\n●Net\nloss available to common stockholders of $12,050,883; and\n\n●Net\ncash used in operations of $4,550,799.\n\n \n\nAdditionally,\nat March 31, 2026, the Company had:\n\n \n\n●Accumulated\ndeficit of $109,035,180;\n\n●Stockholders’\ndeficit of $23,867,968; and\n\n●Working\ncapital deficit of $21,834,519.\n\n \n\nThe\nCompany has unrestricted cash on hand of $1,991,166 at March 31, 2026. The Company has historically incurred significant losses and has\nnot demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve profitable operations.\nIn making this assessment, the Company performed a comprehensive analysis of its current circumstances, including its financial position,\ncash flows and cash usage forecasts for the twelve months ending March 31, 2027, and its current capital structure including equity-based\ninstruments and outstanding debt obligations.\n\n \n\nThe\nCompany believes it does not have sufficient cash resources on hand to meet its current obligations for a period of more than one year\nfrom the issuance date of these financial statements.\n\n \n\nThese\nconditions create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent\nto the date that these consolidated financial statements are issued. The consolidated financial statements do not include any adjustments\nthat might be necessary if the Company is unable to continue as a going concern.\n\n \n\n10\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nManagement\nhas evaluated the significance of these conditions and has developed plans intended to mitigate the substantial doubt. The Company’s\nspecific strategic and financing plans include the following:\n\n \n\n●Enhancing\nmarket visibility and customer acquisition for its direct Mobile Virtual Network Operator\n(“MVNO”) brand, LinkUp Mobile;\n\n●Diversifying\nLifeline revenue streams by expanding operations into California and additional states;\n\n●Sustaining\nand growing its HERO Mobile Virtual Network Enabler (“MVNE”) enablement platform\nto increase baseline recurring revenue; and\n\n●Accessing\nnew capital through the $20,000,000 convertible secured note financing authorized by the\nBoard of Directors on January 6, 2026.\n\n \n\nThe\nCompany is also actively pursuing additional equity and debt financing alternatives and strategic partnerships. These plans are subject\nto successful execution and prevailing market conditions, and there can be no assurance that they will generate sufficient liquidity\nto alleviate the substantial doubt.\n\n \n\n**Note\n2 - Summary of Significant Accounting Policies**\n\n \n\n**Principles\nof Consolidation and Non-Controlling Interest**\n\n** **\n\nThese\nconsolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly\nowned subsidiaries. All intercompany transactions and balances have been eliminated.\n\n \n\nFor\nentities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to owners other\nthan the Company. The aggregate of the income or loss and corresponding equity that is not owned by us is included in Non-controlling\nInterests in the consolidated financial statements.\n\n** **\n\n**Goodwill\nand Related Impairment - ClearLine Mobile, Inc. and Torch Wireless**\n\n \n\nThe\nCompany tests goodwill for impairment at the reporting unit level annually, or more frequently when events or changes in circumstances\nindicate that the carrying amount of a reporting unit may exceed its fair value, in accordance with ASC 350-20, Intangibles - Goodwill\nand Other.\n\n \n\n11\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nDuring\nthe year ended December 31, 2025, the Company performed its annual goodwill impairment assessment and determined that the fair value\nof the ClearLine Mobile, Inc. (“CLMI”) reporting unit was less than its carrying amount. The CLMI reporting unit was unable\nto generate revenues or cash flows sufficient to sustain operations. Accordingly, the Company recognized a full goodwill impairment charge\nof $2,500,000, representing the entire carrying amount of goodwill attributable to CLMI. This charge is included in other expense in\nthe accompanying consolidated statements of operations for the year ended December 31, 2025.\n\n \n\nThe\nCompany also determined that the fair value of the Torch Wireless reporting unit was less than its carrying amount and recognized a full\ngoodwill impairment charge of $800,000 during the year ended December 31, 2025. This charge is included in other expense in the accompanying\nconsolidated statements of operations for the year ended December 31, 2025.\n\n \n\nGoodwill\nconsisted of the following:\n\n Schedule\nof Goodwill\n\nBalance - December 31, 2024 \n$3,300,000 \n\nImpairment charge - CLMI \n (2,500,000)\n\nImpairment charge - Torch \n (800,000)\n\nBalance - December 31, 2025 \n$- \n\n \n\n**Note\nReceivable (Sale of Former Subsidiary) and Related Impairment**\n\n \n\nOn\nMay 7, 2021, the Company disposed of its former subsidiary True Wireless, Inc. In connection with the sale, the Company received an unsecured\npromissory note receivable from Blue Skies Connections, LLC in the original principal amount of $176,851, bearing interest at 0.6% per\nannum, with a default interest rate of 10%. The note was payable in twenty-five (25) monthly installments of principal and accrued interest\nof $7,461, commencing June 2023.\n\n \n\nOn\nJuly 12, 2023, the Company provided Notice of Default to Blue Skies Connections, LLC for failure to make required payments, and accelerated\nthe full outstanding balance in accordance with the terms of the note. The note was placed on non-accrual status upon default in July\n2023, and no interest income (including default interest at 10%) has been recognized since that date due to uncertainty of collection.\n\n \n\nDuring\nthe year ended December 31, 2025, the Company determined that the note was uncollectible and recognized an impairment loss of $176,851,\nrepresenting the full carrying amount of the note receivable. This charge is included in other expense - net in the accompanying consolidated\nstatements of operations for the year ended December 31, 2025.\n\n \n\nSee\nNote 8 for additional discussion of related legal proceedings.\n\n \n\n12\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nThe\nNote Receivable was as follows:\n\n Schedule\nof Note Receivables\n\nDecember 31, 2024 \n 176,851 \n\nLess: impairment loss \n (176,851)\n\nDecember 31, 2025 \n$- \n\n \n\n**Business\nSegments and Concentrations**\n\n \n\nThe\nCompany uses the “management approach” to identify its reportable segments. The management approach requires companies\nto report segment financial information consistent with information used by management for making operating decisions and assessing\nperformance as the basis for identifying the Company’s reportable segments. The Company manages its business as 3 multiple\nreportable segments. See Note 10 regarding segment disclosure.\n\n \n\nRevenues\nrelated to the Mobile Virtual Network Operator (SurgePhone and Torch Wireless) business segment are 100% derived from programs administered\nby the Federal Communications Commission (FCC), and all funds related to these programs are received directly from organizations under\nthe direction of the FCC and subject to administrative rulings, statutory changes, and other funding restrictions that could impact the\nCompany’s operations in this segment.\n\n \n\nRevenues\nrelated to the Point-of-Sale and Prepaid Services business segment are derived from suppling digital top-ups to a broad base of Independent\nSales Organizations (ISOs), direct dealer stores, and convenience retailers, enabling us to sell domestic and international airtime and\ndata replenishments for multiple carriers. Top ups are purchased at a wholesale rate and resold at a retail pricing, with the Company\ncapturing margin on each transaction.\n\n \n\nAccounts\nreceivable related to these programs made up approximately 86% and 84% of accounts receivable at March 31, 2026 and December 31, 2025,\nrespectively.\n\n \n\n**Use\nof Estimates**\n\n** **\n\nPreparing\nfinancial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts\nof assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues\nand expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.\n\n \n\n13\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nSignificant\nestimates at March 31, 2026 and December 31, 2025 include the following:\n\n \n\n●Allowance\nfor doubtful accounts and other receivables;\n\n●Inventory\nreserves and classifications;\n\n●Valuation\nof loss contingencies;\n\n●Valuation\nof stock-based compensation;\n\n●Estimated\nuseful lives related to property and equipment and intangible assets;\n\n●Implicit\ninterest rate in right-of-use operating leases;\n\n●Uncertain\ntax positions; and\n\n●Valuation\nallowance on deferred tax assets.\n\n \n\n**Risks\nand Uncertainties**\n\n \n\nThe\nCompany operates in an industry that is subject to intense competition and changes in consumer demand. The Company’s operations\nare subject to significant risk and uncertainties including financial and operational risks including the potential risk of business\nfailure.\n\n \n\nThe\nCompany has experienced, and in the future may experience, variability in sales and earnings. The factors expected to contribute to this\nvariability include, among others, the following:\n\n \n\n●The\ncyclical nature of the industry;\n\n●General\neconomic conditions in the various local markets in which the Company competes, including\na potential general downturn in the economy; and\n\n●The\nvolatility of prices in connection with the Company’s distribution of the product.\n\n \n\nThese\nfactors, among others, make it difficult to project the Company’s operating results on a consistent basis.\n\n \n\n**Fair\nValue of Financial Instruments**\n\n \n\nThe\nCompany accounts for financial instruments in accordance with Accounting Standards Codification (ASC) 820, Fair Value Measurements, which\ndefines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between\nmarket participants at the measurement date. ASC 820 establishes a three-tier hierarchy that prioritizes observable inputs over unobservable\ninputs:\n\n \n\n●Level\n1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.\n\n●Level\n2 - Inputs other than quoted prices included in Level 1 that are observable for the asset\nor liability, either directly or indirectly.\n\n●Level\n3 - Unobservable inputs that reflect the Company’s own assumptions about the assumptions\nmarket participants would use, developed using the best information available in the circumstances.\n\n \n\n14\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n** **\n\nThe\nCompany’s financial instruments include cash, accounts receivable, accounts payable, and accrued expenses, including related-party\namounts. As of March 31, 2026 and December 31, 2025, the carrying values of these instruments approximate their fair values due to their\nshort-term nature.\n\n \n\nSee\nNote 6 for the Company’s derivative liabilities, which are measured at fair value on a recurring basis using Level 3 inputs.\n\n \n\n**Cash\nand Cash Equivalents, Restricted Cash and Concentration of Credit Risk**\n\n \n\nFor\npurposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months\nor less at the purchase date and money market accounts to be cash equivalents.\n\n \n\nThe\nCompany is exposed to credit risk on its cash and cash equivalents in the event of default by the financial institutions to the extent\naccount balances exceed the amount insured by the FDIC, which is $250,000.\n\n \n\nAt\nMarch 31, 2026 and December 31, 2025, respectively, the Company did not experience any losses on cash balances in excess of FDIC insured\nlimits.\n\n \n\nRestricted\nCash\n\n \n\nThe\nCompany classifies as restricted cash any cash balances that are subject to legal or contractual restrictions limiting their availability\nfor general corporate use. As of March 31, 2026 and December 31, 2025, restricted cash totaled $424,995 and $281,811, respectively, representing\nreserve amounts held in a Company-owned deposit account at the lender under the Company’s accounts receivable financing facility.\nThe reserve is subject to the lender’s first-priority security interest and is available to cover charge-backs, customer adjustments,\nand service fees related to advances under the facility. See Note 5.\n\n \n\n15\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nThe\nfollowing table reconciles cash and restricted cash reported on the consolidated balance sheets to the total cash and restricted cash\npresented on the consolidated statements of cash flows:\n\n Schedule\nof Cash and Restricted Cash Reported on the Consolidated Balance Sheets\n\n  \nMarch 31, 2026  \nDecember 31, 2025 \n\nCash \n$1,991,166  \n$1,731,400 \n\nRestricted cash \n 424,995  \n 281,811 \n\nTotal \n$2,416,161  \n$2,013,211 \n\n \n\n**Accounts\nReceivable**\n\n \n\nAccounts\nreceivable are stated at the amount management expects to collect from outstanding customer balances. Credit is extended to customers\nbased on an evaluation of their financial condition and other factors. Interest is not accrued on overdue accounts receivable. The Company\ndoes not require collateral.\n\n \n\nManagement\nperiodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible\namounts. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical\ncollection information, and existing economic conditions. Accounts determined to be uncollectible are charged to operations when that\ndetermination is made. Bad debt expense is recorded as a component of general and administrative expenses in the accompanying consolidated\nstatements of operations.\n\n \n\nAt\nMarch 31, 2026 and December 31, 2025, the allowance for doubtful accounts was $0, and no bad debt expense or recoveries were recorded\nduring the years then ended.\n\n \n\n**Inventory**\n\n** **\n\nInventory\nprimarily consists of cell phones, store racking, and sim cards. Inventories are stated at the lower of cost or net realizable value\nusing the average cost valuation method.\n\n \n\nAt\nMarch 31, 2026 and December 31, 2025, the Company had inventory of $339,570 and $339,570, respectively.\n\n \n\n16\n\n \n\n** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n** **\n\n**Impairment\nof Long-lived Assets**\n\n \n\nManagement\nevaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances\nindicate a potential impairment exists, in accordance with ASC 360-10-35-15, *Impairment or Disposal of Long-Lived Assets*. Factors\nconsidered in determining whether a potential impairment exists include, but are not limited to:\n\n \n\n●Significant\nchanges in performance relative to expected operating results;\n\n●Significant\nchanges in the use of the assets;\n\n●Significant\nnegative industry or economic trends; and\n\n●Changes\nin the Company’s business strategy.\n\n \n\nIn\ndetermining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition\nof these assets. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows,\nthe impairment loss is measured as the amount by which the carrying amount of the assets exceeds their fair value.\n\n \n\nThere\nwere no impairment losses on long-lived assets for the three months ended March 31, 2026 and 2025, respectively.\n\n** **\n\n**Property\nand Equipment**\n\n \n\nProperty\nand equipment is stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated\nuseful lives of the assets.\n\n \n\nExpenditures\nfor repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When\nproperty or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective\naccounts with the resulting gain or loss reflected in operations.\n\n \n\nManagement\nreviews the carrying value of its property and equipment whenever events or changes in circumstances indicate that the carrying amount\nof the asset may not be recoverable.\n\n \n\nThere\nwere no impairment losses for the three months ended March 31, 2026 and 2025, respectively.\n\n \n\n**Derivative\nLiabilities**\n\n** **\n\nThe\nCompany evaluates financial instruments that contain characteristics of both liabilities and equity in accordance with FASB ASC 480,\n*Distinguishing Liabilities from Equity*, and FASB ASC 815, *Derivatives and Hedging*.\n\n \n\n17\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nAccounting\nfor Derivative Liabilities\n\n \n\nDerivative\nliabilities are remeasured at fair value at each reporting period, with changes in fair value recognized in the consolidated statements\nof operations as a gain or loss on derivative remeasurement. The Company uses the Black-Scholes option pricing model to estimate the\nfair value of these instruments.\n\n \n\nDerivative\nExpense\n\n \n\nWhen\na bifurcated embedded derivative is recognized in connection with the issuance of a convertible debt instrument, the derivative is recorded\nat fair value on the commitment date and a corresponding debt discount is recorded against the host debt instrument, limited to the face\namount of the debt. To the extent the initial fair value of the derivative liability, together with any other debt discounts (including\noriginal issue discount, equity-related discounts, and debt issuance costs), exceeds the face amount of the related debt, the excess\nis recognized immediately as day-one derivative expense in the consolidated statements of operations on the commitment date.\n\n \n\nConversion\nand Extinguishment of Derivative Liabilities\n\n \n\nWhen\na debt instrument with an embedded conversion option is converted into shares of common stock or repaid, the Company:\n\n \n\n●Records\nthe newly issued shares at fair value;\n\n●Derecognizes\nthe related debt, derivative liabilities, and any unamortized debt discounts; and\n\n●Recognizes\na gain or loss on debt extinguishment, if applicable.\n\n \n\nFor\nequity-classified derivative liabilities (such as certain warrants) that are extinguished, any remaining liability balance is reclassified\nto additional paid-in capital.\n\n** **\n\nReclassification\nof Equity Instruments to Liabilities\n\n \n\nEquity\ninstruments initially classified as equity are reclassified to liabilities if they no longer meet the criteria for equity classification.\nUpon reclassification, the instruments are remeasured at fair value on the date of reclassification, with any difference recognized in\nearnings.\n\n** **\n\nDerivative\nLiability Balances\n\n \n\nAs\nof March 31, 2026 and December 31, 2025, the Company had derivative liabilities of $184,983 and $0, respectively.\n\n \n\nSee\nNotes 6 and 7 for additional information.\n\n \n\n18\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\n**Debt\nDiscounts**\n\n \n\nThe\nCompany accounts for original issue discounts (OID), equity instruments issued with debt (common stock, warrants, etc.), and debt issuance\ncosts as debt discounts in accordance with FASB ASC 835-30. These discounts are recorded as a reduction of the carrying amount of the\nrelated debt and amortized to interest expense over the term of the debt using the effective interest method (or straight-line method\nwhen not materially different). The aggregate debt discounts cannot exceed the face amount of the debt.\n\n** **\n\n**Right-of-Use\nAssets and Lease Obligations**\n\n** **\n\nThe\nCompany accounts for leases in accordance with ASC 842, *Leases*.\n\n \n\nRecognition\nand Measurement\n\n \n\nAt\nlease commencement, the Company recognizes a right-of-use (“ROU”) asset and a corresponding lease liability measured at the\npresent value of the lease payments over the lease term. The Company evaluates ROU assets for impairment whenever events or changes in\ncircumstances indicate that the carrying amount may not be recoverable.\n\n \n\nLease\nClassification\n\n \n\nAll\nof the Company’s leases are classified as operating leases and are presented as right-of-use assets and operating lease liabilities\non the consolidated balance sheets. The Company has no finance leases. Operating lease expense is recognized on a straight-line basis\nover the lease term and is recorded in general and administrative expenses in the accompanying consolidated statements of operations.\n\n \n\nShort-Term\nLeases\n\n \n\nThe\nCompany has elected the short-term lease exemption under ASC 842 for leases with an initial term of twelve (12) months or less. These\nleases are not recorded on the balance sheet, and the related lease payments are expensed on a straight-line basis over the lease term.\n\n \n\nLease\nTerm and Renewal Options\n\n \n\nIn\ndetermining the lease term, the Company evaluates whether renewal options are reasonably certain to be exercised. Factors considered\ninclude the useful life of leasehold improvements relative to the lease term, the economic performance of the business at the leased\nlocation, the comparative cost of renewal rates versus market rates, and any significant economic penalties for non-renewal. The Company’s\noperating leases contain renewal options but no residual value guarantees. Management does not currently expect to exercise any renewal\noptions, which are therefore excluded from the measurement of ROU assets and lease liabilities.\n\n \n\n19\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nDiscount\nRate\n\n \n\nAs\nthe implicit rate in the Company’s leases is not readily determinable, the Company uses an incremental borrowing rate (“IBR”)\nthat represents the rate it would incur to borrow on a collateralized basis over a similar term in a similar economic environment.\n\n \n\nSee\nNote 8 for additional information regarding the Company’s operating leases.\n\n \n\n**Revenue\nRecognition**\n\n** **\n\nThe\nCompany recognizes revenue in accordance with ASC 606, *Revenue from Contracts with Customers*. Revenue is recognized when control\nof promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to receive\nin exchange for those goods or services. The Company applies the following five-step model:\n\n \n\n●Identify\nthe contract with the customer;\n\n●Identify\nthe performance obligations in the contract;\n\n●Determine\nthe transaction price;\n\n●Allocate\nthe transaction price to performance obligations; and\n\n●Recognize\nrevenue when or as each performance obligation is satisfied.\n\n \n\nAll\ncontract consideration is fixed and determinable at contract inception. The Company’s contracts do not contain variable consideration,\nsignificant financing components, or multiple performance obligations. The Company does not offer returns, refunds, or warranties, and\nno arrangements are cancellable.\n\n \n\nMobile\nVirtual Network Operators\n\n \n\nTorch\nWireless is licensed to provide subsidized mobile broadband services through the Lifeline program to qualifying low-income customers.\nThe Company’s performance obligation is satisfied as mobile broadband services are provided to eligible subscribers.\n\n \n\nRevenue\nis recognized in the month services are provided to Lifeline subscribers who remain active as of the last day of the month.\n\n \n\nAt\nmonth-end, the Company determines the number of eligible active subscribers based on internal usage data and subscriber eligibility status.\nThe Company then submits a report to the Universal Service Administrative Company (“USAC”), which administers the Lifeline\nreimbursement program on behalf of the federal government. Upon submission of this report, the related accounts receivable is recorded.\nPayment is typically received by the 28th day of the following month.\n\n \n\n20\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nPoint-of-Sale\nand Prepaid Services\n\n \n\nRevenues\nare generated through the sale of telecommunication products, including mobile phones, wireless top-up refills, and other mobile-related\nproducts through the Company’s online web portal. The performance obligation is satisfied at the point of sale, at which time the\nweb portal initiates an automated clearing house (“ACH”) transaction and revenue is recognized. The Company has determined\nit is the principal in these arrangements, as it takes control of the products prior to transferring them to the customer, and accordingly\nrecords revenue on a gross basis with related costs recorded as cost of revenues.\n\n \n\nContract\nLiabilities - Deferred Revenue\n\n \n\nContract\nliabilities represent customer deposits received prior to the satisfaction of the related performance obligation. Upon completion of\nthe performance obligation, the liability is relieved and revenue is recognized.\n\n \n\nAt\nMarch 31, 2026 and December 31, 2025, deferred revenue was $0.\n\n \n\nThe\nfollowing represents the Company’s disaggregation of revenues for the three months ended March 31, 2026 and 2025:\n\n Schedule\nof Disaggregation of Revenue from Contracts with Customers\n\n  \nFor the Three Months Ended March 31, \n\n  \n2026  \n2025 \n\n  \n   \n   \n   \n  \n\nRevenue \nRevenue  \n% of Revenues  \nRevenue  \n% of Revenues \n\n  \n   \n   \n   \n  \n\nMobile Virtual Network Operators \n$1,803,512  \n 11.28% \n$2,285,823  \n 21.61%\n\nPoint-of-Sale and Prepaid Services \n 14,180,471  \n 88.72% \n 8,291,606  \n 78.39%\n\nTotal Revenues \n$15,983,983  \n 100.00% \n$10,577,429  \n 100.00%\n\n \n\nThe\nabove disaggregation of revenues includes the following entities:\n\n** **\n\nMobile\nVirtual Network Operators (SPW and TW),\n\nPoint-of-Sale\nand Prepaid Services (Surge Fintech and ECS); and\n\nOther\nCorporate Overhead (Surge Blockchain and formerly LogicsIQ and Injury Survey)\n\n** **\n\n**Cost\nof Revenues**\n\n \n\nCost\nof revenues consists of tablet purchases, mobile phone purchases, purchased telecom services including data usage and access to wireless\nnetworks. Additionally, cost of revenues consists of call center costs, prepaid phone cards, commissions, and advertising costs.\n\n** **\n\n21\n\n \n\n** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n** **\n\n**Income\nTaxes**\n\n** **\n\nAccounting\nPolicy\n\n \n\nThe\nCompany accounts for income taxes using the asset and liability method prescribed by ASC 740, *Income Taxes*. Under this method,\ndeferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and\nliabilities using enacted tax rates that will be in effect in the years in which the differences are expected to reverse. The effect\non deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.\n\n \n\nThe\nCompany records a valuation allowance against deferred tax assets when, based on the weight of available evidence, it is more likely\nthan not that some portion or all of the deferred tax assets will not be realized.\n\n** **\n\nUncertain\nTax Positions\n\n \n\nThe\nCompany follows the provisions of ASC 740 with respect to uncertainty in income taxes. Tax positions are recognized in the financial\nstatements when it is more likely than not that the position will be sustained upon examination by the taxing authorities.\n\n \n\nAs\nof March 31, 2026 and December 31, 2025, the Company had no uncertain tax positions that qualify for recognition or disclosure in the\nfinancial statements. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. No such\ninterest or penalties were recorded for the three months ended March 31, 2026 and 2025, respectively.\n\n** **\n\nValuation\nAllowance and Net Operating Loss Carryforwards\n\n \n\nThe\nCompany has net operating loss carryforwards that have been evaluated for applicability in offsetting current taxable income. Federal\nnet operating loss carryforwards are limited to 80% of the current year’s net taxable income.\n\n \n\nDuring\n2024, the Company entered a three-year cumulative loss position and remained in that position at March 31, 2026. As a result, a full\nvaluation allowance has been recorded against all net operating loss carryforwards at March 31, 2026 and December 31, 2025, respectively.\n\n** **\n\n**Advertising\nCosts**\n\n \n\nAdvertising\ncosts are expensed as incurred. Advertising costs are included as a component of general and administrative expense in the consolidated\nstatements of operations.\n\n \n\n22\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nThe\nCompany recognized marketing and advertising costs during the three months ended March 31, 2026 and 2025, respectively, as follows:\n\n Schedule\nof Marketing and Advertising Costs\n\nFor the Three Months Ended March 31, \n\n2026  \n2025 \n\n$29,922  \n$23,480 \n\n \n\n**Stock-Based\nCompensation**\n\n** **\n\nThe\nCompany accounts for stock-based compensation in accordance with ASC 718, *Compensation—Stock Compensation*. Compensation\ncost is measured at the grant-date fair value of the award and is recognized over the requisite service period (generally the vesting\nperiod) on a straight-line basis.\n\n \n\nThis\nguidance applies to share-based payment awards granted to both employees and non-employees. Pursuant to ASU 2018-07, *Improvements\nto Nonemployee Share-Based Payment Accounting*, awards granted to non-employees are accounted for in substantially the same manner\nas awards granted to employees, with fair value determined on the grant date.\n\n \n\nFair\nValue Estimation\n\n \n\nThe\nCompany estimates the fair value of stock options granted using the Black-Scholes option-pricing model. The model incorporates the following\nkey assumptions:\n\n \n\n●Expected\ndividend yield - Based on the Company’s anticipated dividend policy over the expected\nlife of the option (generally assumed to be zero, as the Company does not currently pay dividends).\n\n●Expected\nvolatility - Based on the historical volatility of the Company.\n\n●Risk-free\ninterest rate - Based on the yield on U.S. Treasury securities with maturities approximating\nthe expected term of the option.\n\n●Expected\nterm - Estimated based on historical exercise behavior, contractual terms, and the simplified\nmethod (average of contractual term and vesting period) where appropriate.\n\n \n\nForfeitures\nand Expense Classification\n\n \n\nThe\nCompany has elected the practical expedient under ASU 2016-09 to account for forfeitures as they occur rather than estimating them in\nadvance. This election is applied consistently to all stock-based awards. Stock-based compensation expense is classified in the consolidated\nstatements of operations as a component of general and administrative expenses.\n\n \n\n23\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nTax\nTreatment\n\n \n\nThe\nCompany applies the provisions of ASU 2016-09 related to the recognition of all excess tax benefits and tax deficiencies in income tax\nexpense in the period in which they occur and the classification of cash paid for tax withholdings on behalf of employees as financing\nactivities in the consolidated statement of cash flows.\n\n \n\n**Stock\nWarrants**\n\n** **\n\nThe\nCompany issues warrants to purchase shares of its common stock in connection with financing transactions, consulting arrangements, and\nstrategic partnerships. The Company evaluates each warrant issuance under Accounting Standards Codification (ASC) 480, Distinguishing\nLiabilities from Equity, and ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity, to determine the appropriate\nbalance sheet classification.\n\n \n\nWarrants\nthat are not puttable or mandatorily redeemable, do not require net cash settlement, and are indexed solely to the Company’s own\ncommon stock are classified as equity instruments and recorded in additional paid-in capital. Warrants that do not meet the requirements\nfor equity classification are recorded as liabilities at fair value, with changes in fair value recognized in earnings at each reporting\ndate.\n\n \n\nThe\nfair value of warrants is measured using an appropriate fair value model, taking into consideration the specific terms and features of\neach instrument.\n\n \n\nWarrants\nissued in connection with the sale of common stock are recorded at fair value as an allocation of the proceeds within additional paid-in\ncapital.\n\n \n\nWarrants\nissued in connection with the issuance of debt are recorded as a debt discount at fair value and amortized to interest expense over the\nterm of the related debt using the effective interest method.\n\n \n\nWarrants\nissued in exchange for services are recorded at fair value and recognized as expense over the requisite service period, or immediately\nupon issuance if no service period exists.\n\n** **\n\n**Basic\nand Diluted Earnings (Loss) per Share**\n\n** **\n\nComputation\n\n \n\nThe\nCompany computes basic and diluted earnings (loss) per share in accordance with ASC 260-10-45, *Earnings Per Share*, as amended\nby ASU 2020-06, *Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity*.\n\n \n\n24\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nBasic\nearnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during\nthe reporting period.\n\n \n\nDiluted\nearnings (loss) per share includes the impact of potentially dilutive securities and is calculated by dividing net income (loss) by the\nweighted-average number of common shares outstanding plus the weighted-average number of common stock equivalents and other potentially\ndilutive securities during the period.\n\n** **\n\nTreasury\nStock\n\n \n\nTreasury\nshares are excluded from the denominator in computing both basic and diluted earnings (loss) per share because they are not considered\noutstanding.\n\n \n\nDuring\nthe year ended December 31, 2025, the Company reacquired 333,333 shares of treasury stock for $999,999 ($3 per share) in connection with\na third-party convertible debt lender arrangement (see Note 5).\n\n \n\nPotentially\nDilutive Securities\n\n \n\nPotentially\ndilutive common shares include contingently issuable shares, common stock issuable upon the exercise of stock options and warrants (calculated\nusing the treasury stock method in accordance with ASC 260-10-55), and convertible debt instruments, if applicable.\n\n \n\nThese\nsecurities may be dilutive in future periods. However, in periods in which the Company reports a net loss, diluted loss per share is\nequal to basic loss per share because the inclusion of potential common stock equivalents would be anti-dilutive.\n\n \n\nThe\nfollowing potentially dilutive equity securities were outstanding as of March 31, 2206 and 2025:\n\n Schedule\nof Diluted Net Income (Loss) Per Share\n\n  \nMarch 31, 2026  \nMarch 31, 2025 \n\nConvertible notes payable and related accrued interest \n 2,922,105  \n - \n\nWarrants \n 1,165,000  \n 93,000 \n\nStock options \n 1,968,194  \n 1,166,081 \n\nTotal common stock equivalents \n 6,055,299  \n 1,259,081 \n\n \n\nWarrants\nand stock options included as common stock equivalents represent those that are fully vested and exercisable. See Note 9.\n\n \n\n25\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nSufficiency\nof Authorized Shares\n\n \n\nAs\nof March 31, 2026 and December 31, 2025, the Company has 500,000,000 authorized shares of common stock, respectively, which is sufficient\nto accommodate any potential exercises of common stock equivalents.\n\n** **\n\n**Treasury\nStock**\n\n** **\n\nAccounting\nPolicy\n\n \n\nThe\nCompany accounts for treasury stock using the cost method in accordance with ASC 505-30, *Equity—Treasury Stock*. Under this\nmethod, treasury stock is recorded at cost on the date of repurchase and presented as a reduction in stockholders’ equity. Purchases,\nsales, issuances, or retirements of treasury stock do not affect the consolidated statements of operations.\n\n** **\n\nReissuance\nof Treasury Stock\n\n \n\nWhen\ntreasury shares are reissued, they are removed from treasury stock at their original cost. Any excess of the reissuance price over cost\nis credited to additional paid-in capital. Any deficiency is charged first to additional paid-in capital to the extent of previously\nrecorded credits from treasury stock transactions, with any remaining deficiency charged to retained earnings.\n\n** **\n\nRetirement\nof Treasury Stock\n\n \n\nThe\nCompany periodically assesses whether to retain treasury shares or retire them. Upon retirement, the shares are removed from issued stock\nand a corresponding adjustment is made to retained earnings.\n\n \n\n**Related\nParties**\n\n \n\nThe\nCompany identifies and discloses related party relationships and transactions in accordance with ASC 850, “Related Party Disclosures”,\nand follows guidance set forth by the SEC under Regulation S-X, Rule 4-08(k) regarding related party disclosures.\n\n \n\nA\nparty is considered related to the Company if it meets any of the following criteria:\n\n \n\n●Directly\nor indirectly controls, is controlled by, or is under common control with the Company.\n\n●Principal\nowners, including any entity or individual that holds a significant ownership interest in\nthe Company.\n\n●Management\nand key personnel, including officers, directors, and executives.\n\n●Immediate\nfamily members of principal owners and key management personnel.\n\n●Entities\nwith significant influence, where one party can exert control or influence over the management\nor operating policies of another party to the extent that one of the transacting parties\nmay not be fully pursuing its own separate economic interests.\n\n \n\n26\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nThe\nCompany follows the SEC’s Regulation S-K, Item 404(a), which requires the disclosure of related party transactions exceeding a\nmateriality threshold and details on the nature of the relationship, transaction terms, and amounts involved.\n\n \n\nDuring\nthe three months ended March 31, 2026 and 2025, respectively, the Company incurred expenses with a related party (annual rental agreement)\nin the normal course of business as follows:\n\n Schedule\nof Related Party Expenses\n\nRelated Party \nMarch 31, 2026  \nMarch 31, 2025\n  \n\nCarddawg Investments, Inc. \n$41,589  \n$41,589\n ** **\n\n \n\n1\n- represents an affiliate of our Chief Executive Officer (Kevin Brian Cox)\n\n \n\nFrom\ntime to time, the Company may use credit cards to pay corporate expenses, these credit cards are in the names of certain of the Company’s\nofficers and directors. These amounts are insignificant.\n\n \n\nSee\nNote 5 for debt transactions with our Chief Executive Officer.\n\n** **\n\n**Recent\nAccounting Standards**\n\n \n\n**Recently\nAdopted Accounting Standards**\n\n \n\n**FASB\nASU 2023-07 – Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures**\n\n \n\nIn\nNovember 2023, the FASB issued ASU 2023-07, which enhances reportable segment disclosure requirements by requiring disclosure of significant\nsegment expenses regularly provided to the chief operating decision maker (“CODM”), the title and position of the CODM, and\nextending certain annual disclosures to interim periods. It also clarifies that single-reportable-segment entities must apply ASC 280\nin its entirety. This ASU was effective for annual periods beginning after December 15, 2023, and interim periods beginning after December\n15, 2024, with retrospective application required.\n\n \n\nThe\nCompany adopted ASU 2023-07 effective January 1, 2025. The adoption resulted in enhanced segment disclosures but did not have a material\nimpact on the Company’s consolidated financial position, results of operations, or cash flows.\n\n \n\n27\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\n**FASB\nASU 2023-09 – Income Taxes (Topic 740): Improvements to Income Tax Disclosures**\n\n \n\nIn\nDecember 2023, the FASB issued ASU 2023-09, which enhances income tax disclosure requirements by standardizing and disaggregating rate\nreconciliation categories and requiring disclosure of income taxes paid by jurisdiction. This ASU was effective for annual periods beginning\nafter December 15, 2024, and may be applied on a prospective or retrospective basis. The Company adopted ASU 2023-09 effective January\n1, 2025.\n\n \n\nThe\nadoption resulted in enhanced income tax disclosures but did not have a material impact on the Company’s consolidated financial\nposition, results of operations, or cash flows.\n\n \n\n**FASB\nASU 2025-05 – Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract\nAssets**\n\n \n\nIn\nJuly 2025, the FASB issued ASU 2025-05, which provides a practical expedient that permits entities to assume that current economic conditions\nas of the balance sheet date will remain unchanged over the remaining life of current (short-term) accounts receivable and current contract\nassets arising from transactions accounted for under ASC 606. The Company early adopted ASU 2025-05 effective January 1, 2025, and elected\nthe practical expedient. The amendments were applied prospectively. The adoption did not have a material impact on the Company’s\nconsolidated financial position, results of operations, or cash flows.\n\n \n\n**FASB\nASU 2024-04 - Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments**\n\n** **\n\nIn\nNovember 2024, the FASB issued ASU 2024-04, which clarifies the requirements for determining whether certain settlements of convertible\ndebt instruments should be accounted for as an induced conversion. The ASU was effective for annual reporting periods beginning after\nDecember 15, 2025, and interim reporting periods within those annual periods.\n\n \n\nThe\nCompany adopted ASU 2024-04 effective January 1, 2026 on a prospective basis. The adoption did not have a material impact on the Company’s\nconsolidated financial position, results of operations, or cash flows.\n\n** **\n\n**Recently\nIssued Accounting Standards Not Yet Adopted**\n\n \n\n**FASB\nASU 2024-03 / ASU 2025-01 – Income Statement (Topic 220): Reporting Comprehensive Income - Expense Disaggregation Disclosures**\n\n \n\nIn\nNovember 2024, the FASB issued ASU 2024-03, which requires public business entities to disclose, in both annual and interim reporting\nperiods, disaggregated information about certain income statement expense line items in a tabular format, along with a qualitative reconciliation\nto the captions on the face of the financial statements. In January 2025, the FASB issued ASU 2025-01 to clarify the effective date for\nnon-calendar year-end entities. The ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting\nperiods beginning after December 15, 2027. Early adoption is permitted and may be applied on either a prospective or retrospective basis.\n\n \n\n28\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nThe\nCompany is currently assessing the potential impact of ASU 2024-03 / 2025-01 on its consolidated financial statement disclosures.\n\n \n\nOther\nAccounting Standards Updates\n\n \n\nThe\nCompany has evaluated all other recently issued accounting standards not yet effective and has determined that the adoption of such standards\nis not expected to have a material impact on the Company’s financial statements or disclosures.\n\n** **\n\n**Reclassifications**\n\n \n\nCertain\nprior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no material\neffect on the consolidated results of operations, stockholders’ equity, or cash flows.\n\n \n\n** **\n\n**Note\n3 – Property and Equipment**\n\n** **\n\nProperty\nand equipment consisted of the following:\n\n Schedule of Property and Equipment\n\n  \n   \n   \nEstimated Useful\n\nType \nMarch 31, 2026  \nDecember 31, 2025  \nLives (Years)\n\nComputer equipment and software \n$1,135,178  \n$1,135,178  \n3 - 5\n\nLeasehold improvements \n 324,901  \n 324,901  \n5\n\nFurniture and fixtures \n 165,738  \n 165,738  \n5 - 7\n\nProperty and Equipment - gross \n 1,625,817  \n 1,625,817  \n \n\nLess: accumulated depreciation/amortization \n (1,249,139) \n (1,222,300) \n \n\nProperty and equipment - net \n$376,678  \n$403,517  \n \n\n \n\nDepreciation\nand amortization expense for the three months ended March 31, 2026 and 2025 was as follows:\n\n Schedule of Depreciation\nand Amortization Expense\n\nFor the Three Months Ended March 31, \n\n2026  \n2025 \n\n$26,839  \n$86,122 \n\n \n\nThese\namounts are included as a component of general and administrative expenses in the accompanying consolidated statements of operations.\n\n \n\n29\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\n**Note\n4 – Intangibles**\n\n** **\n\nIntangibles\nconsisted of the following:\n\n Schedule of Intangible Assets\n\n  \n   \n   \nEstimated Useful\n\nType \nMarch 31, 2026  \nDecember 31, 2025  \nLives (Years)\n\n  \n   \n   \n \n\nProprietary Software \n$4,286,402  \n$4,286,402  \n7\n\nTradenames/trademarks \n 617,474  \n 617,474  \n15\n\nECS membership agreement \n 465,000  \n 465,000  \n1\n\nNoncompetition agreement \n 201,389  \n 201,389  \n2\n\nCustomer Relationships \n 183,255  \n 183,255  \n5\n\nIntangibles - gross  \n 5,753,520  \n 5,753,520  \n \n\nLess: accumulated amortization \n (5,097,744) \n (4,934,367) \n \n\nIntangibles - net \n$655,776  \n$819,153  \n \n\n \n\nAmortization\nexpense for the three months ended March 31, 2026 and 2025 was as follows:\n\n Schedule of Amortization Expense\n\nFor the Three Months Ended March 31, \n\n2026  \n2025 \n\n$163,377  \n$163,452 \n\n \n\nEstimated\namortization expense for each of the succeeding years is as follows:\n\n Schedule of Estimated Amortization Expenses\n\nFor the Years Ended December 31: \n  \n\n2026 (9 months) \n 490,131 \n\n2027 \n 165,645 \n\nTotal \n$655,776 \n\n \n\n30\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\n**Note\n5 – Debt**\n\n \n\nThe\nfollowing represents a summary of the Company’s notes payable – SBA government, notes payable – related parties, convertible\nnotes payable and notes payable, key terms, and outstanding balances at March 31, 2026 and December 31, 2025, respectively:\n\n** **\n\n**Notes\nPayable – SBA government**\n\n \n\n**Economic\nInjury Disaster Loan (“EIDL”)**\n\n** **\n\nDuring\n2020, the Company received Economic Injury Disaster Loan (“EIDL”) proceeds under a U.S. Small Business Administration program\nmade available in response to the COVID-19 pandemic, which were used for working capital purposes. Monthly installment payments of principal\nand interest range from $74 to $731 and are payable over thirty (30) years from the date of the promissory note, with no prepayment penalty.\n\n Schedule of Loans Payable\n\nTerms \nEIDL SBA \n\n  \n  \n\nIssuance dates of SBA loans \n May 2020 - July 2020 \n\nTerm \n 30 Years \n\nMaturity date \n May 2050 - July 2050 \n\nInterest rate \n 3.75%\n\nCollateral \n Unsecured \n\n  \n   \n\nBalance - December 31, 2024 \n$469,396 \n\nRepayments \n (11,062)\n\nBalance - December 31, 2025 \n 458,334 \n\nRepayments \n (2,415)\n\nBalance - March 31, 2026 \n$455,919 \n\n** **\n\n**Note\nPayable – Related Party**\n\n \n\nThe\nfollowing summarizes activity in the Company’s note payable to a related party (the Chief Executive Officer):\n\n Summary of Notes Payable - Related Parties\n\nBalance - December 31, 2024 \n$3,555,655 \n\nRepayments \n (824,859)\n\nBalance - December 31, 2025 \n 2,730,796 \n\nConversion of debt to common stock \n (707,200)\n\nForgiveness of debt \n (292,800)\n\nBalance - March 31, 2026 \n$1,730,796 \n\n \n\nOn\nMarch 12, 2024, the Company consolidated outstanding principal of $4,584,563 and accrued interest of $498,991 into a single unsecured\nnote with a face amount of $5,083,554. The note bears interest at 10% per annum (15% upon default) and is repayable in monthly installments\nof $164,039 over 36 months, maturing in December 2026.\n\n \n\nBeginning\nin July 2025, monthly payments were temporarily suspended due to cash flow constraints. The note holder confirmed that the suspension\ndoes not constitute an event of default. Interest continues to accrue at the contractual 10% rate, and the note terms were not modified.\nManagement is evaluating options to resume or restructure payments.\n\n \n\n31\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\n**Conversion\nof Related Party Note Payable to Common Stock**\n\n** **\n\nOn\nMarch 23, 2026, the Company issued 800,000 shares of common stock to its Chief Executive Officer in partial conversion of a related party\nnote payable (see Note 9). The shares were valued at their fair market value of $707,200 ($0.884 per share), determined using the quoted\nclosing market price on the issuance date. In connection with the transaction, the Chief Executive Officer forgave an additional $292,800\nof principal on the note.\n\n \n\nThe\nforgiveness of debt by the Chief Executive Officer, in his capacity as both a principal shareholder and creditor, was accounted for as\na capital contribution and credited to additional paid-in capital. No gain on debt extinguishment was recognized. The aggregate value\nof the transaction ($1,000,000) was applied as a reduction to the outstanding balance of the related party note payable.\n\n \n\nThe\nfollowing is a detail of the Company’s Notes Payable - Related Party:\n\n Schedule of Notes Payable - Related Parties\n\nNote Payable - Related Party\n\nNote Holder \nIssue Date \nMaturity Date \nInterest Rate  \nDefault Interest Rate  \nCollateral \nMarch 31, 2026  \nDecember 31, 2025 \n\nNote #1 \nDecember 31, 2023 \nDecember 31, 2026 \n 10.00% \n 15.00% \nUnsecured \n$1,730,796  \n$2,730,796 \n\n  \n  \n  \n    \n    \nShort Term \n 1,730,796  \n 2,730,796 \n\n  \n  \n  \n    \n    \nLong Term \n$-  \n$- \n\n \n\n32\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\n****\n\n**Convertible\nNotes Payable and Relate Debt Discounts**\n\n \n\nThe\nCompany has issued multiple convertible promissory notes to institutional and individual investors that are convertible into shares of\nthe Company’s common stock. The following table summarizes the principal terms and the gross and net carrying value of the Company’s\nconvertible notes payable as of March 31, 2026 and December 31, 2025:\n\n \n\nThe\nfollowing is a summary of the Company’s Convertible Notes Payable and related Debt Discounts:\n\n Schedule\nof Convertible Notes Payable and related Debt Discounts\n\n  \nDecember 31, 2024  \nFace amount of note  \n\nStated guaranteed\n\nearned interest\n  \nCommon stock repurchase  \nDebt discounts  \nAmortization of debt discount  \nDecember 31, 2025  \n\nUnamortized\n\nDebt\n\nDiscounts\n \n\nConvertible Notes Payable\n\n  \nDecember 31,  \nFace amount  \n\nStated guaranteed\n\nearned\n  \nCommon stock  \nDebt  \nAmortization of  \nDecember 31,   \n\nUnamortized\n\nDebt\n \n\nNote # \n2024  \nof note  \ninterest  \nrepurchase  \ndiscounts  \ndebt discount  \n2025  \nDiscounts \n\nNote #1 \n$-  \n$6,000,000  \n$-  \n$999,999  \n$(1,679,927) \n$559,976  \n$5,880,048  \n$1,119,951 \n\nNote #2 \n -  \n 770,000  \n 61,600  \n -  \n (224,900) \n 74,967  \n 681,667  \n 149,933 \n\nNote #3 \n -  \n 660,000  \n 52,800  \n -  \n (182,720) \n 45,680  \n 575,760  \n 137,040 \n\nNote #4 \n -  \n 385,000  \n 30,800  \n -  \n (106,780) \n 26,695  \n 335,715  \n 80,085 \n\nNote #5 \n -  \n 385,000  \n 30,800  \n -  \n (104,580) \n 26,145  \n 337,365  \n 78,435 \n\nNote #6 \n -  \n 495,000  \n 39,600  \n -  \n (126,500) \n 21,083  \n 429,183  \n 105,417 \n\nTotal \n$-  \n$8,695,000  \n$215,600  \n$999,999  \n$(2,425,407) \n$754,546  \n$8,239,738  \n$1,670,861 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\n \n\n  \n**December 31, 2025**  \nFace amount of note  \nStated guaranteed earned interest  \nCommon stock repurchase  \nDebt discounts  \nAmortization of debt discounts  \n**March 31, 2026**  \nUnamortized Debt Discounts \n\nConvertible\nNotes Payable\n\n  \n**December 31,**  \nFace amount  \nStated guaranteed earned  \nCommon stock  \nDebt  \nAmortization of debt  \n**March 31,**  \nUnamortized Debt \n\nNote # \n2025  \nof note  \ninterest  \nrepurchase  \ndiscounts  \ndiscounts  \n2026  \nDiscounts \n\nNote #1 \n$5,880,048  \n$500,000  \n$-  \n$-  \n$-  \n$169,993  \n$6,550,041  \n$949,958 \n\nNote #2 \n 681,667  \n -  \n -  \n -  \n -  \n 56,225  \n 737,892  \n 93,708 \n\nNote #3 \n 575,760  \n -  \n -  \n -  \n -  \n 45,680  \n 621,440  \n 91,360 \n\nNote #4 \n 335,715  \n -  \n -  \n -  \n -  \n 26,695  \n 362,410  \n 53,390 \n\nNote #5 \n 337,365  \n -  \n -  \n -  \n -  \n 26,145  \n 363,510  \n 52,290 \n\nNote #6 \n 429,183  \n -  \n -  \n -  \n -  \n 31,625  \n 460,808  \n 73,792 \n\nNote #7 \n -  \n 333,333  \n 26,667  \n -  \n (142,797) \n 11,900  \n 229,103  \n 130,897 \n\nNote #8 \n -  \n 500,000  \n 40,000  \n -  \n (236,926) \n 19,744  \n 322,818  \n 217,182 \n\nNote #9 \n -  \n 100,000  \n -  \n -  \n (8,823) \n 1,103  \n 92,280  \n 7,720 \n\nNote #10 \n -  \n 50,000  \n -  \n -  \n (2,905) \n 242  \n 47,337  \n 2,663 \n\nNote #11 \n -  \n 100,000  \n -  \n -  \n (7,808) \n 976  \n 93,168  \n 6,832 \n\nNote #12 \n -  \n 400,000  \n -  \n -  \n (35,292) \n 4,412  \n 369,120  \n 30,880 \n\nNote #13 \n -  \n 50,000  \n -  \n -  \n -  \n -  \n 50,000  \n - \n\nNote #14 \n -  \n 200,000  \n -  \n -  \n -  \n -  \n 200,000  \n - \n\nNote #15 \n -  \n 75,000  \n -  \n -  \n -  \n -  \n 75,000  \n - \n\nTotal \n$8,239,738  \n$2,308,333  \n$66,667  \n$-  \n$(434,551) \n$394,740  \n$10,574,927  \n$1,710,672 \n\n \n\n33\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\n  \nWarrants  \nLegal fees  \nBroker fee  \nOriginal Issue Discount  \nStated Guaranteed Interest  \nCommitment Shares (common stock)  \nDecember 31, 2025 \n\nDebt Discounts\n\n  \n   \nLegal  \nBroker  \nOriginal Issue  \nStated Guaranteed  \nCommitment Shares (common  \nDecember 31,  \n\nNote # \nWarrants  \nfees  \nfee  \nDiscount  \nInterest  \nstock)  \n2025 \n\nNote #1 \n$1,084,927  \n$175,000  \n$420,000  \n$-  \n$-  \n$-  \n$1,679,927 \n\nNote #2 \n -  \n 7,500  \n -  \n 70,000  \n 61,600  \n 85,800  \n 224,900 \n\nNote #3 \n -  \n 2,000  \n -  \n 60,000  \n 52,800  \n 67,920  \n 182,720 \n\nNote #4 \n -  \n 1,500  \n -  \n 35,000  \n 30,800  \n 39,480  \n 106,780 \n\nNote #5 \n -  \n -  \n -  \n 35,000  \n 30,800  \n 38,780  \n 104,580 \n\nNote #6 \n -  \n 2,000  \n -  \n 45,000  \n 39,600  \n 39,900  \n 126,500 \n\nTotal \n$1,084,927  \n$188,000  \n$420,000  \n$245,000  \n$215,600  \n$271,880  \n$2,425,407 \n\n  \n    \n    \n    \n    \n    \n    \n   \n\n \n\n  \nWarrants  \nLegal fees  \nBroker fee  \nOriginal Issue Discount  \nStated Guaranteed Interest  \nCommitment Shares (common stock)  \nMarch 31, 2026 \n\nDebt Discounts\n\n  \n   \nLegal  \nBroker  \nOriginal Issue  \nStated Guaranteed  \nCommitment Shares (common  \nMarch 31,  \n\nNote # \nWarrants  \nfees  \nfee  \nDiscount  \nInterest  \nstock)  \n2026 \n\nNote #7 \n$73,297  \n$9,500  \n$-  \n$33,333  \n$26,667  \n$-  \n$142,797 \n\nNote #8 \n 141,926  \n 5,000  \n -  \n 50,000  \n 40,000  \n -  \n 236,926 \n\nNote #9 \n -  \n -  \n -  \n -  \n -  \n 8,823  \n 8,823 \n\nNote #10 \n -  \n -  \n -  \n -  \n -  \n 2,905  \n 2,905 \n\nNote #11 \n -  \n -  \n -  \n -  \n -  \n 7,808  \n 7,808 \n\nNote #12 \n -  \n -  \n -  \n -  \n -  \n 35,292  \n 35,292 \n\nNote #13 \n -  \n -  \n -  \n -  \n -  \n -  \n - \n\nNote #14 \n -  \n -  \n -  \n -  \n -  \n -  \n - \n\nNote #15 \n -  \n -  \n -  \n -  \n -  \n -  \n - \n\nTotal \n$215,223  \n$14,500  \n$-  \n$83,333  \n$66,667  \n$54,828  \n$434,551 \n\n \n\n34\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nThe\nfollowing is a detail of the Company’s Convertible Notes Payable:\n\n** **Schedule\nof Convertible Notes Payable\n\nConvertible Notes Payable - Net\n\nNote Holder \nIssue Date \nMaturity Date \nInterest Rate  \nDefault Interest Rate  \nCollateral \nMarch 31, 2026  \nDecember 31, 2025 \n\nNote #1 \nMay 12, 2025 \nNovember 12, 2027 \n 15.00% \n 15.00% \nAll assets \n$7,499,999  \n$6,999,999 \n\nNote #2 \nSeptember 29, 2025 \nSeptember 29, 2026 \n 0.00% \n 22.00% \nUnsecured \n 831,600  \n 831,600 \n\nNote #3 \nOctober 8, 2025 \nOctober 8, 2026 \n 0.00% \n 22.00% \nUnsecured \n 712,800  \n 712,800 \n\nNote #4 \nOctober 7, 2025 \nOctober 7, 2026 \n 0.00% \n 22.00% \nUnsecured \n 415,800  \n 415,800 \n\nNote #5 \nOctober 15, 2025 \nOctober 15, 2026 \n 0.00% \n 22.00% \nUnsecured \n 415,800  \n 415,800 \n\nNote #6 \nNovember 17, 2025 \nNovember 17, 2026 \n 0.00% \n 22.00% \nUnsecured \n 534,600  \n 534,600 \n\nNote #7 \nMarch 27, 2026 \nMarch 27, 2027 \n 8.00% \n 22.00% \nUnsecured \n 360,000  \n - \n\nNote #8 \nMarch 12, 2026 \nMarch 12, 2027 \n 8.00% \n 22.00% \nUnsecured \n 540,000  \n - \n\nNote #9 \nJanuary 12, 2026 \nJanuary 12, 2028 \n 14.50% \n 18.00% \nAll assets \n 100,000  \n - \n\nNote #10 \nFebruary 18, 2026 \nFebruary 18, 2028 \n 14.50% \n 18.00% \nAll assets \n 50,000  \n - \n\nNote #11 \nJanuary 23, 2026 \nJanuary 23, 2028 \n 14.50% \n 18.00% \nAll assets \n 100,000  \n - \n\nNote #12 \nJanuary 12, 2026 \nJanuary 12, 2028 \n 14.50% \n 18.00% \nAll assets \n 400,000  \n - \n\nNote #13 \nMarch 11, 2026 \nMarch 11, 2028 \n 14.50% \n 18.00% \nAll assets \n 50,000  \n - \n\nNote #14 \nMarch 6, 2026 \nMarch 6, 2028 \n 14.50% \n 18.00% \nAll assets \n 200,000  \n - \n\nNote #15 \nMarch 20, 2026 \nMarch 20, 2028 \n 14.50% \n 18.00% \nAll assets \n 75,000  \n - \n\n  \n  \n  \n    \n    \nGross Carrying Value \n 12,285,599  \n 9,910,599 \n\n  \n  \n  \n    \n    \nLess: unamortized debt discount \n (1,710,672) \n (1,670,861)\n\n  \n  \n  \n    \n    \nConvertible notes payable - net \n 10,574,927  \n 8,239,738 \n\n  \n  \n  \n    \n    \nShort Term \n 7,744,342  \n 3,068,878 \n\n  \n  \n  \n    \n    \nLong Term \n$2,830,585  \n$5,170,860 \n\n** **\n\n**Convertible\nNotes Payable - Notes #1 through #6**\n\n \n\n**Overview**\n\n \n\n**Year\nEnded December 31, 2025**\n\n \n\nThe\nCompany entered into six (6) Note Purchase Agreements with institutional investors and issued Convertible Notes (collectively, the “Notes”)\nwith an aggregate obligation (including guaranteed interest) of $9,694,999. Note #1 is a senior secured obligation collateralized by\na first-priority lien on substantially all of the Company’s and its subsidiaries’ assets. Notes #2 through #6 are unsecured\nobligations.\n\n \n\n35\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nThe\nNotes are summarized in detail below.\n\n \n\n**Note\n#1 - Senior Secured Convertible Note**\n\n \n\nOn\nMay 12, 2025, the Company issued a Senior Secured Convertible Note (the “Note”) in the original principal amount of $6,999,999,\nresulting in net cash proceeds of $5,405,000 after $175,000 of legal fees and $420,000 of broker fees. The Note is fully guaranteed by\ncertain of the Company’s subsidiaries. Concurrent with issuance, the Company repurchased 333,333 shares of its common stock from\nthe investor at $3.00 per share; these shares were cancelled and retired and are recorded as treasury stock (see Note 9).\n\n \n\nThe\nNote accrues interest at 1.25% per month (15.00% per annum), payable monthly in cash or as payment-in-kind at the Company’s election.\nFollowing the Second Amendment (January 31, 2026) and Third Amendment (March 26, 2026), each evaluated and accounted for as a debt modification\nunder ASC 470-50 (no gain or loss recognized; carrying value not adjusted), the Note currently amortizes in equal monthly installments\nof $500,000 commencing June 30, 2026, with the remaining balance due on the November 12, 2027 maturity date. Pursuant to the Third Amendment,\nthe investor advanced an additional $500,000 of principal under the Note (increasing the aggregate principal to $7,499,999), and the\nCompany agreed to obtain shareholder approval by July 17, 2026 to permit issuance of conversion shares in excess of 19.99% of the Company’s\noutstanding common stock (the “Exchange Cap”); until such approval is obtained, conversions are limited to the Exchange Cap\npursuant to Nasdaq Rule 5635(d).\n\n \n\nThe\nNote is convertible at the investor’s option into shares of the Company’s common stock at $4.00 per share. The conversion\noption is indexed solely to the Company’s own common stock and satisfies the fixed-for-fixed criteria under ASC 815-10-15-74(a),\nqualifying for the scope exception from derivative accounting. Accordingly, the Note is accounted for in its entirety as a debt instrument.\n\n \n\n**Warrant\nIssuance**\n\n \n\nIn\nconnection with the issuance of the original note ($6,999,999), the Company issued warrants to purchase 700,000 shares of its common\nstock at an exercise price of $6.00 per share. The warrants are immediately exercisable and expire on May 12, 2030.\n\n \n\nThe\nCompany allocated a portion of the proceeds to the warrants based on their relative fair value, determined using the Black-Scholes option\npricing model. The fair value of the warrants at issuance was estimated at $1,084,927, which was recorded as a debt discount with a corresponding\ncredit to additional paid-in capital.\n\n \n\n36\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nThe\nassumptions used in the Black-Scholes model were as follows:\n\n Schedule of Fair Value of Warrants\n\nExpected term (years) \n 5 \n\nExpected volatility \n 105%\n\nExpected dividends \n 0%\n\nRisk free interest rate \n 4.09%\n\n \n\n**Debt\nDiscount**\n\n** **\n\nIn\nconnection with the issuance of the Note, the Company recorded total debt discounts of $1,679,927, consisting of the following:\n\n Schedule\nof Debt Discounts\n\n  \n   \n\nFair value - warrants issued \n$1,084,927 \n\nLegal fees \n 175,000 \n\nBroker fees \n 420,000 \n\nTotal debt discount \n$1,679,927 \n\n \n\nDebt\ndiscounts are being amortized to interest expense over the revised contractual term of the Note through the Maturity Date (as amended)\nof November 12, 2027 using the effective interest method in accordance with ASC 835-30.\n\n** **\n\n**Notes\n#2 through #6**\n\n** **\n\nThe\nCompany issued five (5) separate one-year unsecured Convertible Notes summarized in the tables below (collectively, the “Notes”).\n\n \n\nIn\naccordance with ASC 835-30, original issue discounts, guaranteed interest capitalized at issuance, the fair value of common shares issued\nto the investors (determined based on the quoted closing price of the Company’s common stock on each respective grant date), and\nprofessional fees were recorded as a reduction of the carrying value of the respective Notes and are amortized to interest expense using\nthe effective interest method over each Note’s one-year contractual term.\n\n \n\nEach\nof these notes is convertible at the investor’s option into common stock at fixed conversion prices in three tranches: 25% of the\ntotal obligation at $4.00 per share, 25% at $6.00 per share, and 50% at $6.00 per share. Upon an event of default or the Company’s\nfailure to pay any amortization payment when due, all tranches may alternatively be converted at 85% of the lowest daily volume-weighted\naverage price (“VWAP”) of the Company’s common stock during the five (5) trading days immediately preceding the conversion\ndate.\n\n \n\n37\n\n \n\n** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nThe\nfixed conversion prices are subject to customary anti-dilution adjustments. Subject to specified price and volume conditions and the\ninvestor’s prior written consent, the Company may also effect a mandatory conversion of all or a portion of any 2025 Note.\n\n \n\nThe\nCompany evaluated the embedded conversion features under ASC 815-10-15-74(a) and ASC 815-40. The fixed-price conversion options ($4.00\nand $6.00 per share) satisfy the fixed-for-fixed criteria under ASC 815-40-15 and qualify for the scope exception from derivative accounting.\nThe contingent VWAP-based conversion feature is exercisable only upon an event of default; management has assessed the likelihood of\ndefault as remote, and the feature is therefore considered clearly and closely related to the debt host under ASC 815-10-15-74(a) and\nqualifies for the equity scope exception. Each 2025 Note is accounted for in its entirety as a debt instrument. The Company reassesses\nthe probability of default at each reporting date; should default no longer be considered remote, the contingent feature would be bifurcated\nand recognized as a derivative liability at fair value. As of March 31, 2026, the Company was in compliance with all terms of the 2025\nNotes.\n\n \n\n**Convertible\nNotes Payable - Other (Notes #7 and #8) (Derivative Liabilities)**\n\n \n\nIn\nMarch 2026, the Company issued two unsecured convertible promissory notes to institutional investors along with accompanying common stock\npurchase warrants.\n\n \n\nThe\nnotes were issued at a discount due to original issue discount, capitalized guaranteed interest, debt issuance costs, and the fair value\nof the warrants. These discounts are recorded as a reduction of the notes’ carrying value and amortized to interest expense using\nthe effective interest method over the contractual term.\n\n \n\nThe\nnotes mature twelve months (12) from issuance and bear a one-time guaranteed interest charge of 8% on the original principal, fully earned\nat issuance. They are repayable in four monthly installments followed by a final payment of all remaining amounts, with a 22% default\ninterest rate.\n\n \n\n●Note\n#7: Original principal $333,333 (total obligation $360,000). Four monthly payments of $72,000\nbegin November 27, 2026, with final payment due March 27, 2027.\n\n●Note\n#8: Original principal $500,000 (total obligation $540,000). Four monthly payments of approximately\n$102,920 begin November 12, 2026, with final payment due March 12, 2027.\n\n \n\n38\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nEach\nnote includes embedded conversion features in three tranches:\n\n \n\n●First\ntranche (≈25%): convertible at $4.00 per share;\n\n●Second\ntranche (≈25%): convertible at $6.00 per share;\n\n●Third\ntranche (≈50%): convertible only upon event of default or missed amortization payment,\nat 85% of the lowest daily VWAP during the five preceding trading days.\n\n \n\nThe\nfixed-price conversion options in the first two tranches qualify for the ASC 815-40-15 scope exception and are not bifurcated. The third\ntranche is considered remote and is also not bifurcated. The notes are accounted for entirely as debt, with default probability reassessed\neach reporting period.\n\n \n\nThe\nCompany also issued 5five-year warrants to purchase 375,000 shares of common stock at $1.25 per share (150,000 related to Note #7 and\n225,000 related to Note #8). Due to certain cash settlement features, the warrants are accounted for as derivative liabilities. Their\naggregate fair value at issuance ($215,223) was recorded as a derivative liability and debt discount. The warrants are remeasured at\nfair value each reporting period, with changes recognized in earnings.\n\n \n\nSee\nNote 6 for additional information on derivative liabilities.\n\n \n\n**Convertible\nSecured Notes Payable Financing – Notes #9 - #15**\n\n \n\nOn\nJanuary 6, 2026, the Board authorized a private placement of up to $20,000,000 of convertible secured promissory notes (the “Notes”).\nThe Notes bear interest at 14.5% per annum, payable quarterly in arrears, and mature 24 months from the respective issuance date. Torch\nWireless, a subsidiary, unconditionally guarantees the Notes, which are secured by a junior perfected security interest in substantially\nall of the Company’s assets, subordinated to existing senior indebtedness under an intercreditor agreement.\n\n \n\nThe\nNotes are convertible at the holder’s option at any time into common stock using tiered conversion prices (20% tranches) based\non the portion of principal and accrued interest converted. Conversion pricing differs by closing:\n\n \n\n●Notes\n#9 - #12 - closings of $325,000 closing at higher-tier pricing: $4.00, $6.00, $8.00, $10.00,\nand $12.00 per share.\n\n●Notes\n#13 - #15 - closings totaling $650,000 at lower-tier pricing: $2.00, $4.00, $6.00, $8.00,\nand $10.00 per share.\n\n \n\n39\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nAll\nconversion prices are subject to customary anti-dilution adjustments for stock splits, stock dividends, and similar pro rata equity events.\nThe Notes contain no down-round, full-ratchet, or variable conversion price provisions. Conversions are subject to a 4.99% beneficial\nownership limitation (increaseable to 9.99% upon 61 days’ prior written notice) and are settled solely in shares of common stock.\n\n \n\nSix\nmonths after issuance, the Company may force conversion at the applicable tiered prices, subject to no Event of Default, minimum volume-weighted-average\nprice (VWAP) and trading volume thresholds, and freely tradeable shares.\n\n \n\nUpon\nan uncured Event of Default, the outstanding principal, accrued and unpaid interest, and default interest at 18% per annum become immediately\ndue and payable, and the holder may convert the Default Amount into common stock at the applicable tiered conversion price.\n\n \n\nAs\nof March 31, 2026, the Company had issued $975,000 in aggregate principal amount of Notes (Notes #9 through #15). Subsequent to March\n31, 2026, the Company issued an additional $175,000 in principal amount under the lower-tier pricing.\n\n \n\nIn\nconnection with the issuances, the Company issued an aggregate of 31,525 commitment shares of common stock to the holders as additional\nconsideration for the financing. The commitment shares were recorded at fair value on the respective issuance dates, based on the closing\nmarket prices of the Company’s common stock, which ranged from $0.83 to $2.04 per share, for an aggregate fair value of $54,828.\nThe fair value of the commitment shares was recorded as a debt discount against the carrying amount of the related Notes and is being\namortized to interest expense over the contractual term of the Notes using the effective interest method.\n\n \n\nThe\nCompany evaluated the embedded conversion features under ASC 815-15-25-1 and ASC 815-40. The tiered fixed conversion prices are indexed\nsolely to the Company’s common stock and are subject only to standard anti-dilution adjustments, satisfying the fixed-for-fixed\ncriterion and qualifying for the scope exception in ASC 815-10-15-74(a). The Notes are accounted for as a single liability under ASC\n470-20, as amended by ASU 2020-06, with no separation of the conversion feature into an equity component.\n\n \n\n40\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nThe\nfollowing tables summarize each convertible note and their related debt discount components:\n\n** **Schedule\nof Key Terms and Debt Discount Components\n\n**Convertible Notes Payable - Net**\n\n \n\nYear Ended December 31, 2025\n\n  \nIssue \nMaturity \nOriginal  \nCapitalized Guaranteed  \nTotal  \nNet Cash  \nTotal Debt \n\nNote Holder \nDate \nDate \nPrincipal  \nInterest  \nObligation  \nProceeds  \nDiscount \n\nNote #1 \nMay 12, 2025 \nNovember 12, 2027 \n$7,499,999  \n$-  \n$7,499,999  \n$5,405,000  \n$1,679,927 \n\nNote #2 \nSeptember 29, 2025 \nSeptember 29, 2026 \n 770,000  \n 61,600  \n 831,600  \n 692,500  \n 224,900 \n\nNote #3 \nOctober 8, 2025 \nOctober 8, 2026 \n 660,000  \n 52,800  \n 712,800  \n 598,000  \n 182,720 \n\nNote #4 \nOctober 7, 2025 \nOctober 7, 2026 \n 385,000  \n 30,800  \n 415,800  \n 348,500  \n 106,780 \n\nNote #5 \nOctober 15, 2025 \nOctober 15, 2026 \n 385,000  \n 30,800  \n 415,800  \n 350,000  \n 104,580 \n\nNote #6 \nNovember 17, 2025 \nNovember 17, 2026 \n 495,000  \n 39,600  \n 534,600  \n 448,000  \n 126,500 \n\nTotal \n  \n  \n$10,194,999  \n$215,600  \n$10,410,599  \n$7,842,000  \n$2,425,407 \n\n  \n  \n  \n    \n    \n    \n    \n   \n\nThree Months Ended March 31, 2026\n\n  \nIssue \nMaturity \nOriginal  \nCapitalized Guaranteed  \nTotal  \nNet Cash  \nTotal Debt \n\nNote Holder \nDate \nDate \nPrincipal  \nInterest  \nObligation  \nProceeds  \nDiscount \n\nNote #7 \nMarch 27, 2026 \nMarch 27, 2027 \n$333,333  \n$26,667  \n$360,000  \n$290,500  \n$142,797 \n\nNote #8 \nMarch 12, 2026 \nMarch 12, 2027 \n 500,000  \n 40,000  \n 540,000  \n 445,000  \n 236,926 \n\nNote #9 \nJanuary 12, 2026 \nJanuary 12, 2028 \n 100,000  \n -  \n 100,000  \n 100,000  \n 8,823 \n\nNote #10 \nFebruary 18, 2026 \nFebruary 18, 2028 \n 50,000  \n -  \n 50,000  \n 50,000  \n 2,905 \n\nNote #11 \nJanuary 23, 2026 \nJanuary 23, 2028 \n 100,000  \n -  \n 100,000  \n 100,000  \n 7,808 \n\nNote #12 \nJanuary 12, 2026 \nJanuary 12, 2028 \n 400,000  \n -  \n 400,000  \n 400,000  \n 35,292 \n\nNote #13 \nMarch 11, 2026 \nMarch 11, 2028 \n 50,000  \n -  \n 50,000  \n 50,000  \n - \n\nNote #14 \nMarch 6, 2026 \nMarch 6, 2028 \n 200,000  \n -  \n 200,000  \n 200,000  \n - \n\nNote #15 \nMarch 20, 2026 \nMarch 20, 2028 \n 75,000  \n -  \n 75,000  \n 75,000  \n - \n\nTotal \n  \n  \n$1,808,333  \n$66,667  \n$1,875,000  \n$1,710,500  \n$434,551 \n\n** **\n\nNote\n#1 ($7,499,999) is a combination of principal from 2025 ($6,999,999) and 2026 ($500,000). Net cash proceeds in 2026 are reflected in\nthe table above plus an additional $500,000, totaling $2,225,000, the Company also paid direct debt offering costs of $14,500.\n\n \n\n41\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\n**Debt Discount Components**\n\n** **\n\nYear Ended December 31, 2025 \n\n  \nOriginal Issue  \nCapitalized Guaranteed  \nWarrants  \nCommon Stock  \nGrant Date  \nFair Value of Shares  \nProfessional  \nTotal Debt \n\nNote Holder \nDiscount  \nInterest  \nIssued  \nIssued  \nPrice  \nIssued  \nFees  \nDiscount \n\nNote #1 \n$-  \n$-  \n$1,084,927  \n -  \n$-  \n$-  \n$595,000  \n$1,679,927 \n\nNote #2 \n 70,000  \n 61,600  \n -  \n 30,000  \n$2.86  \n 85,800  \n 7,500  \n 224,900 \n\nNote #3 \n 60,000  \n 52,800  \n -  \n 24,000  \n$2.83  \n 67,920  \n 2,000  \n 182,720 \n\nNote #4 \n 35,000  \n 30,800  \n -  \n 14,000  \n$2.82  \n 39,480  \n 1,500  \n 106,780 \n\nNote #5 \n 35,000  \n 30,800  \n -  \n 14,000  \n$2.77  \n 38,780  \n -  \n 104,580 \n\nNote #6 \n 45,000  \n 39,600  \n -  \n 21,000  \n$1.90  \n 39,900  \n 2,000  \n 126,500 \n\n  \n$245,000  \n$215,600  \n$1,084,927  \n$103,000  \n    \n$271,880  \n$608,000  \n$2,425,407 \n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nThree Months Ended March 31, 2026 \n\n  \nOriginal Issue  \nCapitalized Guaranteed  \nWarrants\n  \nCommon Stock  \nGrant Date  \nFair Value of Shares  \nProfessional  \nTotal Debt \n\n  \nDiscount  \nInterest  \nIssued\n  \nIssued  \nPrice  \nIssued  \nFees  \nDiscount \n\nNote #7 \n$33,333  \n$26,667  \n$73,297\n**A** \n -  \n$-  \n$-  \n$9,500  \n$142,797 \n\nNote #8 \n 50,000  \n 40,000  \n 141,926\n**A** \n -  \n$-  \n -  \n 5,000  \n 236,926 \n\nNote #9 \n -  \n -  \n -\n  \n 4,325  \n$2.04  \n 8,823  \n -  \n 8,823 \n\nNote #10 \n -  \n -  \n -\n  \n 3,500  \n$0.83  \n 2,905  \n -  \n 2,905 \n\nNote #11 \n -  \n -  \n -\n  \n 6,400  \n$1.22  \n 7,808  \n -  \n 7,808 \n\nNote #12 \n -  \n -  \n -\n  \n 17,300  \n$2.04  \n 35,292  \n -  \n 35,292 \n\nNote #13 \n -  \n -  \n -\n  \n -  \n$-  \n -  \n -  \n - \n\nNote #14 \n -  \n -  \n -\n  \n -  \n$-  \n -  \n -  \n - \n\nNote #15 \n -  \n -  \n -\n  \n -  \n$-  \n -  \n -  \n - \n\nTotal \n$83,333  \n$66,667  \n$215,223\n  \n$31,525  \n    \n$54,828  \n$14,500  \n$434,551 \n\n \n\nA- The Warrants\nIssued for Notes #7 and #8 are classified as derivative liabilities under ASC 815-40-25; see Note 6, Derivative Liabilities, for further\ninformation.\n\n \n\n42\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nThese\nconvertible notes are repayable in either monthly or quarterly installments inclusive of the capitalized guaranteed interest, with any\nunpaid amounts due and payable as part of the final installment, as follows:\n\n Schedule\nof Note Payments\n\n  \nMonthly  \nQuarterly  \n  \n  \n  \n  \n \n\nNote Holder \nInstallment  \nInstallment  \nPayment 1 \nPayment 2 \nPayment 3 \nPayment 4 \nPayment 5\n\nNote #1 \n N/A  \n N/A  \nN/A \nN/A \nN/A \nN/A \nN/A\n\nNote #2 \n$166,320  \n    \nMay 25, 2026 \nJune 25, 2026 \nJuly 25, 2026 \nAugust 25, 2026 \nSeptember 25, 2026\n\nNote #3 \n$142,560  \n    \nMay 31, 2026 \nJune 30, 2026 \nJuly 31, 2026 \nAugust 31, 2026 \nOctober 8, 2026\n\nNote #4 \n$83,160  \n    \nJune 7, 2026 \nJuly 7, 2026 \nAugust 7, 2026 \nSeptember 7, 2026 \nOctober 7, 2026\n\nNote #5 \n$83,160  \n    \nJune 15, 2026 \nJuly 15, 2026 \nAugust 15, 2026 \nSeptember 15, 2026 \nOctober 15, 2026\n\nNote #6 \n$106,920  \n    \nJuly 17, 2026 \nAugust 17, 2026 \nSeptember 17, 2026 \nOctober 17, 2026 \nNovember 17, 2026\n\nNote #7 \n$72,000  \n    \nNovember 27, 2026 \nDecember 28, 2026 \nJanuary 27, 2027 \nFebruary 26, 2027 \nMarch 27, 2027\n\nNote #8 \n$106,920  \n    \nNovember 12, 2026 \nDecember 12, 2026 \nJanuary 12, 2027 \nFebruary 12, 2027 \nMarch 12, 2027\n\nNote #9 \n    \n$25,000  \nJanuary 12, 2027 \nApril 12, 2027 \nJuly 12, 2027 \nOctober 12, 2027 \nN/A\n\nNote #10 \n    \n$12,500  \nFebruary 18, 2027 \nMay 18, 2027 \nAugust 18, 2027 \nNovember 18, 2027 \nN/A\n\nNote #11 \n    \n$25,000  \nJanuary 23, 2027 \nApril 23, 2027 \nJuly 23, 2027 \nOctober 23, 2027 \nN/A\n\nNote #12 \n    \n$100,000  \nJanuary 12, 2027 \nApril 12, 2027 \nJuly 12, 2027 \nOctober 12, 2027 \nN/A\n\nNote #13 \n    \n$12,500  \nMarch 11, 2027 \nJune 11, 2027 \nSeptember 11, 2027 \nDecember 11, 2027 \nN/A\n\nNote #14 \n    \n$50,000  \nMarch 6, 2027 \nJune 6, 2027 \nSeptember 6, 2027 \nDecember 6, 2027 \nN/A\n\nNote #15 \n    \n$18,750  \nMarch 20, 2027 \nJune 20, 2027 \nSeptember 20, 2027 \nDecember 20, 2027 \nN/A\n\n \n\n43\n\n \n\n** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n** **\n\n**Notes\nPayable**\n\n** **\n\nThe\nfollowing is a summary of the Company’s Notes Payable:\n\n Schedule\nof Notes Payable\n\n  \nNote #1  \nNote #2  \nTotal \n\nBalance - December 31, 2024 \n$-  \n$-  \n$- \n\nProceeds from issuance of note \n 1,000,000  \n 5,628,811  \n 6,628,811 \n\nRepayments \n -  \n (4,751,765) \n (4,751,765)\n\nDebt discount \n (48,418) \n -  \n (48,418)\n\nAmortization of debt discount \n 5,380  \n -  \n 5,380 \n\nBalance - December 31, 2025 \n$956,962  \n$877,046  \n$1,834,008 \n\n  \n    \n    \n   \n\nUnamortized debt discount \n$43,038  \n$-  \n$43,038 \n\n  \n    \n    \n   \n\nBalance - December 31, 2025 \n$956,962  \n$877,046  \n$1,834,008 \n\nNotes payable, beginning balance \n$956,962  \n$877,046  \n$1,834,008 \n\nProceeds \n -  \n 954,272  \n 954,272 \n\nRepayments \n -  \n (347,983) \n (347,983)\n\nAmortization of debt discount \n 43,038  \n -  \n 43,038 \n\nBalance - March 31, 2026 \n$1,000,000  \n$1,483,335  \n$2,483,335 \n\nNotes payable, ending balance \n$1,000,000  \n$1,483,335  \n$2,483,335 \n\n** **\n\nThe\nfollowing is a detail of the Company’s Notes Payable:\n\n \n\nNotes Payable - Net\n\nNote Holder \nIssue Date \nMaturity Date \nIn-Default \nInterest Rate  \nDefault Interest Rate  \nCollateral \n\nMarch 31,\n\n2026\n  \n\nDecember 31,\n\n2025\n \n\nNote #1 \nSeptember 9, 2025 \nMarch 9, 2026 \nYes \n 19.00% \n 6.00% \nUnsecured \n$1,000,000  \n$1,000,000 \n\nNote #2 \nSeptember 9, 2025 \nSeptember 9, 2026 \nNo \n 0.00% \n 0.00% \nAccounts receivable \n 1,483,335  \n 877,046 \n\n  \n  \n  \n  \n    \n    \nLess: unamortized debt discount \n -  \n (43,038)\n\n  \n  \n  \n  \n    \n    \nNotes payable - net \n 2,483,335  \n 1,834,008 \n\n  \n  \n  \n  \n    \n    \nShort Term \n 2,483,335  \n 1,834,008 \n\n  \n  \n  \n  \n    \n    \nLong Term \n$-  \n$- \n\n** **\n\n44\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nNote\n#1 - Note Issuance and Warrants\n\n \n\nOn\nSeptember 9, 2025, the Company entered into a six-month (6) Senior Secured Note with an individual (the “Investor”), in the\noriginal principal amount of $1,000,000 (the “Note”).\n\n \n\nAs\nof March 31, 2026, this note ($1,000,000) was in default.\n\n \n\nWarrant\nIssuance and Classification\n\n \n\nIn\nconnection with the issuance of the Note, the Company also issued warrants to purchase 30,000 shares of its common stock at an exercise\nprice of $2.50/share. The warrants are immediately exercisable and remain outstanding through September 9, 2028.\n\n \n\nDebt\nDiscount\n\n \n\nIn\nconnection with the issuance of the $1,000,000 note, the Company issued warrants to purchase 30,000 shares of common stock. The Company\nallocated a portion of the proceeds to the warrants based on their relative fair value, determined using the Black-Scholes option pricing\nmodel. The fair value of the warrants was estimated to be $48,418, which was recorded as a debt discount and is being amortized to interest\nexpense over the term of the note. The Company also recorded a corresponding increase to additional paid-in capital of $48,418. See Note\n9.\n\n \n\nThe\nfair value of the warrants was determined using the Black-Scholes model with the following assumptions:\n\n Schedule\nof Fair Value of Warrants\n\nExpected term (years) \n 3 \n\nExpected volatility \n 90%\n\nExpected dividends \n 0%\n\nRisk free interest rate \n 3.48%\n\n \n\nThe\ndebt discount will be fully amortized over the contractual term of the note (1 year).\n\n** **\n\nNote\n#2 – Accounts Receivable Financing Facility\n\n \n\nOn\nSeptember 9, 2025, the Company entered into a one-year Business Loan and Security Agreement (the “Agreement”) with Paragon\nBank (“Paragon”) establishing a $1,500,000 accounts receivable financing facility (the “Facility”). The Facility\nmatures on September 9, 2026 and is secured by a first-priority lien on substantially all of the Company’s accounts receivable\nand related collateral. The Facility is a full-recourse arrangement under which the Company remains liable to Paragon for all advances,\nincluding amounts related to uncollected or disputed customer receivables.\n\n \n\nBecause\nthe Company retains substantially all of the risks and rewards of ownership of the receivables transferred to Paragon under the full-recourse\nterms of the Agreement, the transactions do not qualify as sales under Accounting Standards Codification (ASC) 860-10-40. Accordingly,\nthe underlying receivables remain on the Company’s consolidated balance sheets as accounts receivable, and the related cash advances\nreceived from Paragon are reported as a secured borrowing within current liabilities on the consolidated balance sheets. Service charges\nand related finance fees are recognized as interest expense in the consolidated statements of operations as incurred.\n\n \n\n45\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nBorrowings\nunder the Facility are available based on eligible accounts receivable, with maximum advances of up to 85% of the eligible borrowing\nbase, subject to customary reserves, concentration limits, and reporting requirements. The Facility does not bear stated interest; the\nCompany’s cost of funds under the Facility consists of service charges and related finance fees assessed by Paragon on factored\ninvoice volume, together with a one-time loan origination fee of $5,000 paid at inception. Proceeds from the Facility are used to provide\nworking capital financing and liquidity support for the Company’s operations.\n\n \n\nParagon\nretains a reserve account equal to 15% of receivables financed under the Facility to cover charge-backs, customer adjustments, and service\nfees. Amounts held in the reserve are released to the Company upon collection of the related underlying receivables, net of any applicable\ncharge-backs and fees. The reserve is maintained in a Company-owned deposit account at Paragon Bank, subject to Paragon’s first-priority\nsecurity interest and restrictions on withdrawal, and is presented as restricted cash on the Company’s consolidated balance sheets.\nAt March 31, 2026 and December 31, 2025, the reserve balance was $424,995 and $281,811, respectively.\n\n \n\nService\ncharges and related finance fees were $38,472 and $0 for the three months ended March 31, 2026 and 2025, respectively, and are recognized\nas interest expense in the consolidated statements of operations.\n\n \n\nThe\nAgreement contains customary affirmative and negative covenants, including:\n\n \n\n●borrowing-base\nreporting and certification requirements;\n\n●maintenance\nof the first-priority lien on the pledged receivables and related collateral;\n\n●restrictions\non additional indebtedness, liens, and recourse sales of accounts receivable to parties other\nthan Paragon;\n\n●restrictions\non dividends, mergers, dispositions of collateral outside the ordinary course of business,\nand material changes in the Company’s business operations; and\n\n●maintenance\nof the Company’s corporate existence, required insurance coverage, and periodic financial\nand tax reporting.\n\n \n\nThe\nAgreement also provides that a change in ownership of 25% or more of the Company’s common stock constitutes an event of default.\nAs of March 31, 2026 and December 31, 2025, the Company was in compliance with all covenants and other terms of the Agreement.\n\n \n\n46\n\n \n\n** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n** **\n\n**Debt\nMaturities**\n\n \n\nThe\nfollowing represents the maturities of the Company’s various debt arrangements for each of the five (5) succeeding years and thereafter\nas follows:\n\n Schedule\nof Debt Maturities\n\nFor the Year Ended December 31, \nNote Payable - Related Party  \nConvertible Notes Payable  \nNotes Payable  \nNotes Payable - SBA Government  \nTotal \n\n  \n   \n   \n   \n   \n  \n\n2026 \n$1,730,796  \n$6,840,440  \n$2,483,335  \n$11,727  \n$11,066,298 \n\n2027 \n -  \n 5,445,159  \n -  \n 11,902  \n 5,457,061 \n\n2028 \n -  \n -  \n -  \n 12,308  \n 12,308 \n\n2029 \n -  \n -  \n -  \n 12,820  \n 12,820 \n\n2030 \n -  \n -  \n -  \n 13,313  \n 13,313 \n\nThereafter \n -  \n -  \n -  \n 393,849  \n 393,849 \n\nTotal \n 1,730,796  \n 12,285,599  \n 2,483,335  \n 455,919  \n 16,955,649 \n\nLess: unamortized debt discount \n -  \n 1,710,672  \n -  \n -  \n 1,710,672 \n\nDebt - net \n$1,730,796  \n$10,574,927  \n$2,483,335  \n$455,919  \n$15,244,977 \n\n \n\n**Note\n6 – Derivative Liabilities**\n\n** **\n\nIn\nconnection with the issuance of convertible promissory notes (Notes #7 and #8), in March 2026, the Company issued 375,000 common stock\npurchase warrants. These warrants contain certain cash settlement features triggered upon events of default or change of control and\ntherefore do not qualify for equity classification. Accordingly, the warrants are accounted for as derivative liabilities.\n\n \n\nThe\nderivative liabilities are measured at fair value on a recurring basis and are classified as Level 3 in the fair value hierarchy because\ntheir valuation relies on significant unobservable inputs. The Company determines the fair value of these warrant liabilities using the\nBlack-Scholes option pricing model.\n\n \n\n**Valuation\nAssumptions**\n\n \n\nThe\nCompany used the following key assumptions to estimate the fair value of the derivative liabilities:\n\n Schedule\nof Estimate Fair Value of Derivative Liabilities\n\n  \nCommitment Date  \nRemeasurement \n\nStock Price \n$0.74 - $0.89  \n$0.75 \n\nExercise Price \n$1.25  \n$1.25 \n\nExpected term (years) \n 5.00  \n 4.95 - 4.99 \n\nExpected volatility \n 94% - 98% \n 94%\n\nExpected dividends \n 0.00% \n 0.00%\n\nRisk free interest rate \n 3.88% - 4.06% \n 3.92%\n\n \n\n47\n\n \n\n** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n** **\n\n**Derivative\nLiability Activity**\n\n \n\nChanges\nin the fair value of these derivative liabilities are recognized in the consolidated statements of operations as “Change in fair\nvalue of derivative liabilities” within other income (expense).\n\n \n\nFor\nthe three months ended March 31, 2026 and 2025, the Company recorded a loss (gain) on the change in fair value of derivative liabilities\nof $30,241 and $0, respectively.\n\n \n\nThe\nfollowing table presents a reconciliation of the beginning and ending balances for the Level 3 derivative liabilities for the three months\nended March 31, 2026:\n\n Schedule\nof Beginning and Ending Balances for Level 3 Derivative Liabilities\n\n  \n   \n\nDerivative liabilities – December 31, 2025 \n$- \n\nFair value at commitment date \n 215,224 \n\nFair value - mark to market adjustment \n (30,241)\n\nDerivative liabilities – March 31, 2026 \n$184,983 \n\n \n\n**Note\n7 – Fair Value of Financial Instruments**\n\n** **\n\nThe\nCompany evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis and classifies them within\nthe fair value hierarchy under ASC 820. The Company’s fair value measurement policies, including the three-level hierarchy framework,\nare described in Note 2.\n\n \n\nRecurring\nFair Value Measurements\n\n \n\nAs\nof March 31, 2026, the Company had derivative liabilities classified as Level 3 in the fair value hierarchy. There were no derivative\nliabilities as of December 31, 2025.\n\n \n\nThese\nderivative liabilities (warrants issued with notes #7 and #8) are measured at fair value with significant unobservable inputs.\n\n \n\n48\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nThe\nCompany had no other financial assets or liabilities measured at fair value on a recurring basis as of March 31, 2026 and December 31,\n2025, respectively.\n\n \n\n Schedule\nof Other Financial Assets or Liabilities Measured at Fair Value on a Recurring Basis\n\n  \nLevel 1  \nLevel 2  \nLevel 3  \nTotal \n\n  \nMarch 31, 2026 \n\n  \nLevel 1  \nLevel 2  \nLevel 3  \nTotal \n\nLiabilities \n    \n    \n    \n   \n\nDerivative liabilities \n$       -  \n$           -  \n$184,983  \n$184,983 \n\nTotal \n$-  \n$-  \n$184,983  \n$184,983 \n\n \n\n  \nLevel 1  \nLevel 2  \nLevel 3  \nTotal \n\n  \nDecember 31, 2025 \n\n  \nLevel 1  \nLevel 2  \nLevel 3  \nTotal \n\nLiabilities \n   \n   \n   \n  \n\nDerivative liabilities \n$           -  \n$          -  \n$               -  \n$          - \n\nTotal \n$-  \n$-  \n$-  \n$- \n\n \n\n**Note\n8 – Commitments and Contingencies**\n\n** **\n\n**Operating\nLeases**\n\n \n\nWe\nhave entered into various operating lease agreements, including our corporate headquarters. We account for leases in accordance with\nASC Topic 842: *Leases,*which requires a lessee to utilize the right-of-use model and to record a right-of-use asset and a lease\nliability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either financing or operating,\nwith classification affecting the pattern of expense recognition in the statement of operations. In addition, a lessor is required to\nclassify leases as either sales-type, financing or operating. A lease will be treated as a sale if it transfers all of the risks and\nrewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control,\nthe lease is treated as financing. If the lessor does not convey risk and rewards or control, the lease is treated as operating. We determine\nif an arrangement is a lease, or contains a lease, at inception and record the lease in our financial statements upon lease commencement,\nwhich is the date when the underlying asset is made available for use by the lessor.\n\n \n\nRight-of-use\nassets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease\npayments over the lease term. Lease right-of-use assets and liabilities at commencement are initially measured at the present value of\nlease payments over the lease term. We generally use our incremental borrowing rate based on the information available at commencement\nto determine the present value of lease payments except when an implicit interest rate is readily determinable. We determine our incremental\nborrowing rate based on market sources including relevant industry data.\n\n \n\n49\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nWe\nhave lease agreements with lease and non-lease components and have elected to utilize the practical expedient to account for lease and\nnon-lease components together as a single combined lease component, from both a lessee and lessor perspective with the exception of direct\nsales-type leases and production equipment classes embedded in supply agreements. From a lessor perspective, the timing and pattern of\ntransfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately,\nwould be classified as an operating lease.\n\n \n\nWe\nhave elected not to present short-term leases on the balance sheet as these leases have a lease term of 12 months or less at lease inception\nand do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities\nare recognized based on the present value of lease payments over the lease term at commencement date. Because most of our leases do not\nprovide an implicit rate of return, we used our incremental borrowing rate based on the information available at lease commencement date\nin determining the present value of lease payments.\n\n \n\nOur\nleases, where we are the lessee, do not include an option to extend the lease term. For purposes of calculating lease liabilities, lease\nterm would include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.\n\n \n\nLease\nexpense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, included as a component\nof general and administrative expenses, in the accompanying consolidated statements of operations.\n\n \n\nCertain\noperating leases provide for annual increases to lease payments based on an index or rate, our lease has no stated increase, payments\nwere fixed at lease inception. We calculate the present value of future lease payments based on the index or rate at the lease commencement\ndate. Differences between the calculated lease payment and actual payment are expensed as incurred.\n\n \n\n**Operating\nLease**\n\n \n\nOn\nOctober 1, 2024, the Company entered into a 32-month operating lease for 2,293 square feet of office space in San Salvador. The lease\nexpires in May 2027. The initial monthly payment is $18,958, which includes base rent, estimated operating expenses, and sales tax. The\nlease is subject to annual increases of 3%.\n\n \n\nIn\naccordance with ASC 842, *Leases*, the Company recognized a right-of-use (“ROU”) asset and a corresponding lease liability\nof $565,650 upon lease commencement. The recognition of the ROU asset was a non-cash transaction.\n\n \n\nThe\nCompany had no financing leases as of March 31, 2026 and December 31, 2025.\n\n \n\n50\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nThe\ntables below present information regarding the Company’s operating lease assets and liabilities at March 31, 2026 and December\n31, 2025, respectively:\n\n Schedule of Operating Lease Assets and Liabilities\n\n  \nMarch 31, 2026  \nDecember 31, 2025 \n\nAssets \n    \n   \n\n  \n    \n   \n\nOperating lease - right-of-use asset - non-current \n$260,694  \n$313,410 \n\n  \n    \n   \n\nLiabilities \n    \n   \n\n  \n    \n   \n\nOperating lease liability \n$266,318  \n$319,232 \n\n  \n    \n   \n\nWeighted-average remaining lease term (years) \n 1.17  \n 1.41 \n\n  \n    \n   \n\nWeighted-average discount rate \n 8% \n 8%\n\n \n\nThe components of lease expense were as follows:        \n\n Schedule\nof Components of Lease Expense\n\n  \n2026  \n2025 \n\n  \nThree Months Ended March 31, \n\n  \n2026  \n2025 \n\n  \n   \n  \n\nOperating lease costs \n    \n   \n\n  \n    \n   \n\nAmortization of right-of-use operating lease asset \n$52,716  \n$61,279 \n\nLease liability expense in connection with obligation repayment \n 5,667  \n 10,035 \n\nTotal operating lease costs \n$58,383  \n$71,314 \n\n  \n    \n   \n\nSupplemental cash flow information related to operating leases was as follows: \n    \n   \n\n  \n    \n   \n\nOperating cash outflows from operating lease (obligation payment) \n$58,581  \n$70,062 \n\nRight-of-use asset obtained in exchange for new operating lease liability \n$-  \n$- \n\n \n\n51\n\n \n\n** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nFuture\nminimum lease payments for the years ended December 31:\n\n Schedule\nof Future Minimum Lease Payments\n\nYear Ended December 31, \n   \n\n2026 (9 months) \n$177,501 \n\n2027 \n 100,565 \n\nTotal undiscounted cash flows \n 278,066 \n\nLess: amount representing interest \n 11,748 \n\nPresent value of operating lease liabilities \n 266,318 \n\nLess: current portion of operating lease liabilities \n 226,225 \n\nLong-term operating lease liabilities \n$40,093 \n\n \n\n**Employment\nAgreements (Chief Executive Officer and Chief Financial Officer)**\n\n \n\nChief\nExecutive Officer\n\n \n\nIn\nDecember 2023, the Company entered into an employment agreement with its Chief Executive Officer through December 31, 2028, as subsequently\namended. The agreement provides for an annual base salary of $750,000 for the year ended December 31, 2023, with 3% annual increases\nthereafter, and an annual cash bonus of $870,000.\n\n \n\nThe\nagreement includes a long-term equity incentive program under the SurgePays, Inc. 2022 Omnibus Securities and Incentive Plan, pursuant\nto which the Company is required to grant the Chief Executive Officer 500,000 shares of restricted common stock annually for a minimum\nof five years. Because each annual grant requires separate Board approval, each grant constitutes a separate award under ASC 718. Compensation\ncost is measured at the grant-date fair value and recognized over the requisite service period, which in this case is expected to be\nthe grant date itself (as the awards are fully vested upon grant), consistent with ASC 718-10-55-87 through 55-88.\n\n \n\nThe\ninitial award of 500,000 shares was granted in monthly installments during the second half of 2024 and had a total grant-date fair value\nof $3,800,000 ($7.60 per share). These shares were fully vested and the related compensation expense was fully recognized in 2024. The\nsecond award of 500,000 shares was approved by the Board on June 26, 2025, with an original planned grant and vesting date of June 1,\n2025. On December 31, 2025, the Company and the Chief Executive Officer entered into Amendment No. 3 to the Employment Agreement, which\ndeferred the grant and vesting of this award to April 1, 2026 and also deferred payment of the 2025 annual cash bonus of $870,000 to\nApril 1, 2026. Because no grant date had been established for this award as of December 31, 2025, no stock-based compensation expense\nhas been recognized with respect to this award for the year ended December 31, 2025. The fair value of this award was $360,000 ($0.72/share),\nbased upon the quoted closing market price on the grant date of April 1, 2026 (See Note 11).\n\n \n\n52\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nFuture\nawards of 500,000 shares are scheduled to be granted on or around June 1 of 2026, 2027, and 2028, and on each June 1 of any renewal term,\nwith fair values to be determined at their respective grant dates.\n\n \n\nThe\nagreement also provides for additional performance-based restricted stock awards upon achievement of specified Revenue, EBITDA, and Market\nCapitalization thresholds, with potential award values ranging from $2,500,000 to $200,000,000. No such performance thresholds were met\nduring the year ended December 31, 2025.\n\n \n\nAll\nawards vest immediately upon the Chief Executive Officer’s death, total disability, termination without cause, or a change in control,\nprovided the executive remains employed by the Company at such time.\n\n \n\nChief\nFinancial Officer\n\n \n\nIn\nNovember 2023, the Company finalized the terms of its employment agreement with its former Chief Financial Officer (CFO), providing\nfor a base salary of $489,250\nfor the year ended December 31, 2024 and $503,928\nfor the year ended December 31, 2025, and an annual cash bonus of at least $510,000\nfor the year ended December 31, 2024, with the 2025 bonus subject to Board approval.\n\n \n\nIn\nNovember 2023, the Company granted 600,000\nshares of restricted common stock to its former CFO, having a fair value of $3,114,000\n($5.19/share),\nbased upon the quoted closing trading price on the grant date. The award was structured in two tranches:\n\n \n\n●400,000\nshares vesting ratably over the period July 2024 through December 2024, representing approximately\n66,667 shares per month; and\n\n●200,000\nshares vesting on December 31, 2025.\n\n \n\nAll\n600,000 shares vested in accordance with their original vesting schedules in their respective periods, and all compensation cost associated\nwith this award has been fully recognized in the periods where services were provided.\n\n \n\nIn\nOctober 2025, the Company provided notice to the former CFO that his employment agreement would not be renewed upon its expiration\non December 31, 2025. Subsequent to December 31, 2025, the Company and the former CFO entered into a separation agreement pursuant\nto which the former CFO will provide consulting services through June 30, 2026. In connection therewith, the Company will pay\nconsulting fees of $250,000,\npayable in twelve equal monthly installments of approximately $20,833,\nas well as reimburse health insurance premiums under COBRA through December 31, 2026.\n\n \n\nSee\nNote 9 regarding the vesting provisions of these shares.\n\n \n\n53\n\n \n\n** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nMVNx\nReseller Agreement\n\n \n\nIn\nAugust 2024, the Company entered into an MVNx Reseller Agreement (the “AT&T Agreement”) with AT&T Mobility LLC (“AT&T”),\npursuant to which the Company purchases wholesale wireless network services from AT&T for resale to the Company’s end users\nunder the Company’s own brand. After an extensive systems integration with AT&T, commercial services under the AT&T Agreement\ndid not commence until April 2025. The AT&T Agreement has an initial three-year term commencing on the Launch Date, defined as the\ndate that is 90 days following the completion of such API integration. Following the initial term, the AT&T Agreement automatically\nrenews for successive one-year periods unless either party provides written notice of non-renewal at least 120 days prior to the end\nof the then-current term.\n\n \n\nUnder\nthe AT&T Agreement, the Company is subject to minimum annual spend commitments over the initial three-year term, as follows:\n\n \n\n \n●\nYear\n1: $10,000,000\n\n \n●\nYear\n2: $15,000,000\n\n \n●\nYear\n3: $25,000,000\n\n \n\nThe\naggregate minimum spend commitment over the initial term is $50,000,000. During each month of Year 1, the Company is invoiced for the\ngreater of (i) actual usage charges incurred during that month or (ii) a specified monthly minimum floor that escalates beginning in\nMonth 7 of the term (October 2025), reaching $3,500,000 in Month 12. During Years 2 and 3, the monthly obligation equals the greater\nof actual usage or one-twelfth of the applicable annual minimum commitment. To the extent cumulative invoiced payments in any contract\nyear exceed the applicable annual minimum commitment, the excess is applied toward the minimum commitment for the following year. Any\nportion of an annual minimum commitment that remains unsatisfied at the end of the applicable contract year constitutes an unconditional\npayment obligation of the Company.\n\n \n\nIn\naccordance with Accounting Standards Codification (ASC) 440-10-50, the Company has evaluated its remaining obligations under the AT&T\nAgreement and determined that a material contractual commitment exists. As of December 31, 2025, the Company had a remaining unsatisfied\nminimum spend commitment of $1,981,142 under Year 1 of the AT&T Agreement, representing the portion of the $10,000,000 Year 1 minimum\ncommitment not yet satisfied through invoiced amounts as of the balance sheet date. Amounts invoiced and due under the AT&T Agreement\nare reflected in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.\n\n \n\n54\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nThe\nremaining Year 1 unsatisfied commitment of $1,981,142 must be satisfied by March 2026, which represents the end of the Year 1 contract\nperiod, through ongoing usage charges and, to the extent actual usage is insufficient, minimum commitment payments. Thereafter, beginning\nin April 2026, the Company will be subject to the Year 2 minimum spend commitment of $15,000,000, payable monthly at the greater of actual\nusage or $1,250,000 per month.\n\n** **\n\n**Contingencies\n– Legal Matters**\n\n \n\nIn\nthe normal course of business, the Company may be subject to litigation, claims, and legal proceedings. The Company evaluates legal contingencies\nin accordance with FASB ASC 450-20-50, “Contingencies”, which requires recognition of a liability if an unfavorable outcome\nis both probable and can be reasonably estimated.\n\n \n\nWhen\na legal matter arises, the Company:\n\n \n\n●Assesses\nthe merits of the case, including available defenses.\n\n●Evaluates\nits potential exposure and possible legal or settlement strategies.\n\n●Determines\nthe likelihood of an unfavorable outcome based on available information.\n\n●Establishes\nan accrual if a loss is both probable and reasonably estimable.\n\n \n\nAs\nof March 31, 2026, based on management’s review and consultation with legal counsel, the Company is not aware of any contingent\nliabilities that require accrual or disclosure in the consolidated financial statements.\n\n \n\nBlue\nSkies Connections, LLC, and True Wireless, Inc. v. SurgePays, Inc., et. al.\n\n \n\nDistrict\nCourt of Oklahoma County, OK, CJ-2021-5327, filed on December 13, 2021. Plaintiffs’ petition alleges breach of a Stock Purchase\nAgreement by SurgePays, SurgePhone Wireless, LLC, and Kevin Brian Cox (“Defendants”), and makes other allegations related\nto SurgePays’ consulting work with Jonathan Coffman, formerly a True Wireless employee. The petition requests injunctive relief,\ngeneral damages, punitive damages, attorney fees and costs for alleged breach of contract, tortious interference with a business relationship,\nand fraud. Blue Skies alleged the Defendants are in violation of their non-competition and non-solicitation agreements related to the\nsale of True Wireless from SurgePays to Blue Skies. Defendants filed various dispositive motions with the Court demonstrating Oklahoma\nstate law does not recognize non-compete agreements and non-solicitation agreements in the manner alleged by Plaintiffs, and the Court\ngranted these motions, finding the non-solicitation and non-competition clauses in the Stock Purchase Agreement void as a matter of Oklahoma\nlaw. Defendants then filed additional dispositive motions on Plaintiffs’ claims in tort and equity, which the Court granted in\npart based on its prior rulings. Plaintiffs took the position the Court granting Defendants’ dispositive motions on these material\nissues only leaves partial contract claims that are inextricably intertwined with the remaining claims and defenses. Plaintiffs sought\na certified interlocutory appeal of the Court’s orders. On March 10, 2025, the Oklahoma Supreme Court entered an order denying\nPlaintiffs’ Petition for Certiorari to review the certified interlocutory appeal. In December 2025, Judge Dishman recused himself\nfrom the case following a request from the Blue Skies and True Wireless parties and objection by SurgePays’ counsel. Judge Andrews\nhas been assigned to the matter and has set remaining matters for status and briefing schedules on outstanding motions in the trial court.\nThe case will now proceed in the district court on the parties’ remaining claims. Presently, there is no trial date.\n\n \n\n55\n\n \n\n** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nIn\nthe Circuit Court of Tennessee for the 30th Judicial District at Memphis, Docket # CT-3219-23. On August 8, 2023, a complaint was filed\nby SurgePays for breach of a promissory note by Blue Skies Connections, LLC. The note at issue is dated June 14, 2021, and requires Blue\nSkies Connections to repay the principal sum of $176,850.56, by monthly payments of $7,461.37 commencing on June 1, 2023. Blue Skies\nConnections has failed to make any payments due under the terms of the note, and this breach entitles SurgePays to demand payment of\nthe entire amount of the note together with all accrued interest. Blue Skies Connections responded by filing a Motion to Dismiss or,\nin the alternative, a Motion to Stay, taking the position that, under the prior suit pending doctrine, the subject promissory note is\nsubject to the prior litigation instituted by Blue Skies Connections against SurgePays, styled Skies Connections, LLC and True Wireless,\nInc. v. SurgePays, Inc., et al., Case No. CJ-2021-5327, District Court of Oklahoma County, Oklahoma. SurgePays elected to dismiss its\ncomplaint without prejudice and is in the process of evaluating re-filing the matter in the District Court of Oklahoma County, Oklahoma.\n\n \n\nSurgePays,\nInc. et al. v. Fina et al., Case No. CJ-2022-2782, District Court of Oklahoma County, Oklahoma\n\n \n\nPlaintiffs\nSurgePays, Inc. and Kevin Brian Cox initiated this case against its former officer Mike Fina, his companies Blue Skies Connections, LLC,\nTrue Wireless, Inc., Government Consulting Solutions, Inc., Mussell Communications LLC, and others. This case also arises from the June\n2021 transaction by which SurgePays sold True Wireless to Blue Skies. During the litigation of CJ-2021-5327 described above, SurgePays\nlearned information that showed Mike Fina breached his duties owed to True Wireless during his employment and consulting work for True\nWireless prior to SurgePays’ sale of True Wireless to Blue Skies. SurgePays alleges that Mike Fina conspired with the other defendants\nto damage True Wireless thereby harming the value of the company and causing its eventual sale at a greatly reduced price. SurgePays\nasserts claims for (i) breach of contract; (ii) breach of fiduciary duty; (iii) fraud; (iv) tortious interference; and (v) unjust enrichment.\nAt this stage, no defendant has asserted a counterclaim against SurgePays. SurgePays filed a Second Amended Petition on January 27, 2023.\nDefendants Fina, Blue Skies, True Wireless, and Government Consulting Solutions filed a Motion to Dismiss on March 10, 2023. On June\n29, 2023, the Court granted the Motion to Dismiss, ruling the claims asserted are “derivative” and could only be asserted\nby the True Wireless entity now owed by Blue Skies. The Court rejected SurgePays’ request to certify this ruling for immediate\nappeal. Defendant Misty Garrett filed a Motion for Summary Judgment seeking the same relief as the Motion to Dismiss, which was granted\nby the Court. It is SurgePays’ intent to evaluate an additional options in the Court’s dismissal of Fina, Blue Skies, True\nWireless, Government Consulting Solutions, and Misty Garrett. At this stage, no attempts at settlement have been made.\n\n \n\n56\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nAll\nclaims against all parties have been adjudicated by the Court. SurgePays filed a Motion for New Trial, which was denied by the Court\non February 20, 2025. SurgePays’ has filed an appeal of the Court’s dismissal of Fina, Blue Skies, True Wireless, Government\nConsulting Solutions, and summary judgment for Misty Garrett.\n\n \n\nWith\nregard to the appeal against Misty Garrett and Misty Garrett’s claims against SurgePays, Misty Garrett and SurgePays have entered\ninto a Settlement Agreement and Release dated as of October 16, 2025 in which the parties have agreed to dismiss all matters in the courts\nand release each other from liability, with an agreement to file such dismissal documents at the in the respective courts.\n\n \n\nSSB\nCommunications, Inc., Plaintiff v SurgePays, Inc., and American Broadband & Telecommunications Company, Defendants, Case No. DC-26-07054\n\n \n\nDistrict\nCourt 116th Judicial District, Dallas County, Texas filed April 20, 2026. Plaintiff filed this collection suit seeking an\namount over $250,000 but less than $1,000,000 for breach of contract for the provision of goods, plus interest, fees and costs. SurgePays,\nInc.’s initial pleading is not due until May 25, 2026. At this time, SurgePays, Inc. is in settlement discussions with Co-Defendant,\nAmerican Broadband & Telecommunications Company and the Plaintiff.\n\n \n\nEllenoff\nGrossman & Schole, LLP and SurgePays\n\n \n\nEllenoff\nGrossman & Schole LLP v. SurgePays, Inc., Index No. 651282/2026, Supreme Court of the State of New York, County of New York, filed\nMarch 2, 2026. The action sought recovery of $234,151 in unpaid legal fees, plus costs and attorneys’ fees.\n\n \n\nEffective\nApril 7, 2026, the Company entered into a settlement agreement resolving all claims, pursuant to which the Company agreed to pay the\ntotal settlement amount of $234,151 in eight equal monthly installments of $29,269, commencing April 2026 and ending November 2026. All\nrequired installments have been paid to date. The settlement agreement provides for a default interest rate of 9% per annum on any overdue\namounts and is secured by an Affidavit of Confession of Judgment held in escrow by the plaintiff, which may be filed upon an uncured\npayment default.\n\n** **\n\n57\n\n \n\n** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n** **\n\n**Note\n9 – Stockholders’ Deficit**\n\n** **\n\nAt\nMarch 31, 2026 and December 31, 2025, the Company had three (3) classes of stock:\n\n \n\n**Common\nStock**\n\n** **\n\n●\nAuthorized: 500,000,000 shares\n\n●\nPar Value: $0.001 per share\n\n●\nVoting Rights: One vote per share\n\n●\nDividends: None declared\n\n●\nLiquidation Preference: Subordinate to all classes of preferred stock\n\n** **\n\n**Series\nA, Convertible Preferred Stock**\n\n** **\n\n●\nAuthorized: 13,000,000 shares\n\n●\nIssued and Outstanding: None\n\n●\nPar Value: $0.001 per share\n\n●\nVoting Rights: Ten votes per share\n\n●\nRanking: Senior to all other classes of preferred stock\n\n●\nDividends: None\n\n●\nLiquidation Preference: None\n\n●\nRedemption: Not redeemable\n\n●\nConversion: Each share convertible into one-tenth (1/10) of a share of common stock at the option of the holder\n\n** **\n\n**Series\nC, Convertible Preferred Stock**\n\n** **\n\n●\nAuthorized: 1,000,000 shares\n\n●\nIssued and Outstanding: None\n\n●\nPar Value: $0.001 per share\n\n●\nVoting Rights: 250 votes per share\n\n●\nRanking: Junior to all other classes of preferred stock\n\n●\nDividends: Participating with common stock on an as-converted basis, when and if declared by the Board of Directors\n\n●\nLiquidation Preference: Original issue price plus any declared but unpaid dividends\n\n●\nRedemption: Not redeemable\n\n●\nConversion: Each share convertible into 250 shares of common stock at the option of the holder\n\n** **\n\n58\n\n \n\n**** \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n** **\n\n**Securities\nand Incentive Plan**\n\n** **\n\nIn\nMarch 2023, the Company’s shareholders approved the 2022 Plan (the “Plan”) initially approved, authorized and adopted\nby the Board of Directors in August 2022.\n\n \n\nThe\nPlan initially provided for the following:\n\n \n\n1.3,500,000\nshares of common stock\n\n2.An\nannual increase on the first day of each calendar year beginning January 1, 2023 and ending\non January 1, 2031 equal to the lesser of:\n\n \n\na.10%\nof the common stock outstanding on the final day of the immediately preceding calendar year,\nor\n\nb.Such\nsmaller amount of common stock as determined by the Board of Directors.\n\n \n\n3.The\nshares may be issued as follows to directors, officers, employees, and consultants:\n\n \n\na.Distribution\nequivalent rights\n\nb.Incentive\nshare options\n\nc.Non-qualified\nshare options\n\nd.Performance\nunit awards\n\ne.Restricted\nshare awards\n\nf.Restricted\nshare unit awards\n\ng.Share\nappreciation rights\n\nh.Tandem\nshare appreciation rights\n\ni.Unrestricted\nshare awards\n\n \n\nSee\nthe proxy statement filed with the SEC on January 19, 2023 for a complete detail of the Plan.\n\n \n\nEffective\nJanuary 1, 2025, in accordance with the Plan, we increased the available amount of shares by 10% of the common stock outstanding on December\n31, 2024, approximating an additional 2,007,000 shares of common stock. After this increase, total shares authorized and available to\nbe issued under the Plan approximated 6,907,000 shares.\n\n \n\nEffective\nJanuary 1, 2026, in accordance with the Plan, we increased the available amount of shares by 10% of the common stock outstanding on December\n31, 2025, approximating an additional 2,185,000 shares of common stock. After this increase, total shares authorized and available to\nbe issued under the Plan approximated 9,092,000 shares.\n\n \n\nOf\nthe total shares authorized and available, the Company has reserved shares for its officers, directors and employees for non-vested shares\nthat are expected to vest in accordance with the terms of the related employment agreements and stock options that may be converted into\ncommon stock. At March 31, 2026 and December 31, 2025, the Company had sufficient authorized shares to settle any possible awards that\nvested or stock options eligible for conversion.\n\n \n\n59\n\n \n\n****** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n** **\n\n**Equity\nTransactions for the Three Months Ended March 31, 2026**\n\n** **\n\n**Stock\nIssued for Cash**\n\n** **\n\nUnderwritten\nPublic Offering\n\n** **\n\nOn\nJanuary 20, 2026, the Company entered into an underwriting agreement with R.F. Lafferty & Co., Inc. for an underwritten public\noffering of 2,000,000\nshares of common stock at a public offering price of $1.25\nper share, for gross proceeds of approximately $2,500,000.\nThe offering closed on January 22, 2026. The underwriter was granted a 45-day option to purchase up to an additional 300,000\nshares at the public offering price to cover over-allotments. The Company paid fees of $375,000 for net proceeds of $2,125,000. The\nCompany intends to use the net proceeds for expansion of its Lifeline business and for working capital and general corporate\npurposes.\n\n \n\nIn\nconnection with the offering, the Company issued warrants to the underwriter to purchase a number of shares equal to 3.0% of the total\nshares sold (60,000 warrants – see table below), at an exercise price equal to 110% of the public offering price ($1.38/share).\nThe warrants are exercisable commencing six months after the closing date and expire five years after the commencement of sales, and\nwere issued without registration under the Securities Act of 1933 in reliance on the exemption provided by Section 4(a)(2).\n\n \n\n**Stock\nIssued for Cash – At the Market Offering (“ATM”)**\n\n \n\nThe\nCompany issued 7,323 shares of common stock for net proceeds of $14,375 ($1.98 - $2.03/share).\n\n \n\n**Stock\nIssued for Services**\n\n \n\nThe\nCompany issued 200,000 shares of common stock for services rendered, having a fair value of $334,000 ($1.67/share), based upon the quoted\nclosing trading price.\n\n** **\n\n**Recognition\nof Stock Based Compensation - Restricted Stock Awards – Employees**\n\n** **\n\nThe\nCompany recognized $7,787 in compensation expense, related to the vesting of these awards.\n\n** **\n\n**Debt\nDiscount – Convertible Notes Payable – Common Stock**\n\n** **\n\nDuring\nthe year ended December 31, 2025, the Company issued 31,525 shares of common stock with an aggregate grant-date fair value of $54,828\nto lenders as additional consideration in connection with the issuance of convertible notes payable. The fair value of the shares was\nrecorded as a debt discount and is being amortized to interest expense over the term of the related notes using the effective interest\nmethod. See Note 5.\n\n \n\n60\n\n \n\n**** \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n** **\n\n**Conversion\nof Debt to Common Stock – Related Party**\n\n \n\nOn\nMarch 23, 2026, the Company issued 800,000 shares of common stock to its Chief Executive Officer at a fair value of $707,200 ($0.884\nper share) in partial settlement of a related party note payable. The Chief Executive Officer also forgave $292,800 of principal, which\nwas accounted for as a capital contribution from a principal shareholder and credited to additional paid-in capital. The aggregate $1,000,000\nwas applied as a reduction of the related party note payable, and no gain on extinguishment was recognized. See Note 5.\n\n \n\n**Equity\nTransactions for the Year Ended December 31, 2025**\n\n** **\n\n**Stock\nIssued for Cash – At the Market Offering (“ATM”)**\n\n \n\nIn\nAugust 2025, the Company entered into an At the Market Offering Agreement (the “ATM Agreement”) with Titan Partners Group\nLLC, a division of American Capital Partners, LLC (“Titan”), pursuant to which the Company may, from time to time, offer\nand sell shares of its common stock, $0.001 par value per share, to or through Titan, acting as sales agent and/or principal, in transactions\ndeemed to be “at-the-market offerings” under Rule 415(a)(4) of the Securities Act of 1933, as amended. Under the Prospectus\nSupplement, the Company may offer and sell shares of its common stock having an aggregate offering price of up to $15,000,000, which\nis within the Company’s current “baby shelf” limitations under General Instruction I.B.6. of Form S-3. The Company\nwill pay Titan a commission of 3.0% of the gross proceeds from each sale. The Company intends to utilize the ATM Agreement, when appropriate,\nto fund working capital needs on an ongoing basis.\n\n \n\nThe\nCompany issued 697,691 shares of common stock for gross proceeds of $1,774,636 ($2.12 - $2.98/share). In connection with the capital\nraise, the Company paid cash as direct offering costs (including professional fees) totaling $123,197, resulting in net proceeds of $1,651,439.\n\n** **\n\n**Stock\nIssued for Services**\n\n \n\nThe\nCompany issued 324,000 shares of common stock for services rendered, having a fair value of $641,430 ($1.70 - $2.87/share), based upon\nthe quoted closing trading price.\n\n \n\n**Stock\nIssued to Settle Accounts Payable**\n\n \n\nThe\nCompany issued 22,807 shares of common stock to settle outstanding vendor payables, having a fair value of $65,456 ($2.87/share), based\nupon the quoted closing trading price.\n\n \n\n61\n\n \n\n**** \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n** **\n\n**Debt\nDiscount – Common Stock**\n\n \n\nIn\nconnection with the issuance of various convertible notes payable, the Company issued 103,000 shares of common stock, having a fair value\nof $271,880 ($1.90 - $2.86/share), based upon the quoted closing trading price on each respective grant date. This amount has been recorded\nas a debt discount. See Note 5 for discussion of the various common stock issuances related to convertible note offerings.\n\n** **\n\n**Debt\nDiscount – Warrants**\n\n \n\nIn\nconnection with the issuance of various convertible notes payable and a note payable, the Company issued warrants to purchase shares\nof common stock, having an aggregate fair value of $1,133,345, comprised of $1,084,927 related to convertible notes payable and $48,418\nrelated to the note payable. The fair value of each warrant was determined using the Black-Scholes pricing model on each respective grant\ndate. These amounts have been recorded as a debt discount. See Note 5 for discussion of the assumptions and inputs used in these fair\nvalue calculations.\n\n** **\n\n**Treasury\nStock**\n\n \n\nThe\nCompany repurchased 333,333 shares of its common stock from a convertible note payable holder for $999,999 ($3/share). In connection\nwith the transaction, the principal balance of the related convertible note was increased by $999,999. See Note 5.\n\n \n\n**Restricted\nStock Awards – Employees**\n\n \n\nOn\nDecember 16, 2025, the Company granted 54,331 restricted stock awards (“RSAs”) of its common stock to various employees pursuant\nto the Company’s 2022 Omnibus Securities and Incentive Plan.\n\n \n\nThe\nRSAs vest in full on the third anniversary of the grant date and have a total grant-date fair value of $93,449 ($1.72 per share), based\nupon the quoted closing stock price on the grant date. Compensation expense of $93,449 will be recognized on a straight-line basis over\nthe 36-month requisite service period.\n\n \n\n**Non-Vested\nShares – Related Parties (Officer and Directors) – and related Vesting**\n\n** **\n\nChief\nFinancial Officer\n\n \n\nIn\nNovember 2023, the Company granted 600,000\nshares of restricted common stock to its former Chief Financial Officer (CFO), having a fair value of $3,114,000\n($5.19/share),\nbased upon the quoted closing trading price on the grant date. The award was structured in two tranches, with 400,000\nshares vesting ratably over the period July 2024 through December 2024 and 200,000\nshares vesting on December 31, 2025. All shares vested in accordance with their original vesting schedules. See Note 8 for\nadditional information regarding the CFO employment agreement.\n\n** **\n\n62\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nBoard\nof Directors\n\n \n\n2025\nGrant\n\n \n\nIn\nMay 2025, the Company granted an aggregate of 150,000 shares of common stock to various members of its Board of Directors, having a fair\nvalue of $474,000 ($3.16/share), based upon the quoted closing trading price on the grant date. The shares vest upon the earliest of\nthe following:\n\n \n\n●The\nboard member no longer serves in that capacity for any reason, except for cause;\n\n●Occurrence\nof a change in control; and\n\n●August\n2028.\n\n \n\nEffective\nDecember 31, 2025, a board member resigned their position. In accordance with the terms of their agreement, all unvested shares vested\nimmediately upon resignation. As a result, 88,880 shares of common stock vested on December 31, 2025.\n\n \n\nStock-Based\nCompensation Expense\n\n \n\nThe\nfollowing table summarizes stock-based compensation expense recognized for all officer and director arrangements for the three months\nended March 31, 2026 and 2025:\n\n Schedule\nof Stock Based Compensation Expense Recognized for Officer and Director Arrangements \n\n  \nMarch 31, 2026  \nMarch 31, 2025 \n\nChief Financial Officer \n$-  \n$119,770 \n\nBoard of Directors \n 49,895  \n 35,349 \n\nTotal \n$49,895  \n$155,119 \n\nStock based compensation\nexpense \n$49,895  \n$155,119 \n\n \n\n63\n\n \n\n** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nThe\nfollowing is a summary of the Company’s non-vested shares at March 31, 2026 and December 31, 2025.\n\n Schedule\nof Non-vested Shares Related Parties\n\n  \n   \nWeighted Average \n\nNon-Vested Shares \nNumber of Shares  \nGrant Date Fair Value \n\nBalance - December 31, 2024 \n 139,640  \n$5.03 \n\nGranted \n 150,000  \n 3.16 \n\nVested \n (88,880) \n 4.77 \n\nCancelled/Forfeited \n -  \n - \n\nBalance - December 31, 2025 \n 200,760  \n 4.00 \n\nGranted \n -  \n   \n\nVested \n -  \n   \n\nCancelled/Forfeited \n -  \n   \n\nBalance - March 31, 2026 \n 200,760  \n$4.00 \n\n  \n    \n   \n\nUnrecognized Compensation \n$457,367  \n   \n\n  \n    \n   \n\nWeighted average period (years) \n 2.33  \n   \n\n \n\n**Stock\nOptions**\n\n \n\nStock\noption transactions for the three months ended March 31, 2026 and the year ended December 31, 2025 are summarized as follows:\n\n Schedule\nof Stock Option Transactions\n\n  \n   \n   \nWeighted  \n   \nWeighted \n\n  \n   \n**Weighted**  \nAverage  \n   \nAverage \n\n  \n   \nAverage  \nRemaining  \nAggregate  \nGrant \n\n  \nNumber of  \nExercise   \nContractual  \nIntrinsic  \nDate \n\nStock Options \nOptions  \nPrice  \nTerm (Years)  \nValue  \nFair Value \n\nOutstanding - December 31, 2024 \n 1,166,081  \n$2.37  \n 6.85  \n$-  \n   \n\nVested and Exercisable - December 31, 2024 \n 1,166,081  \n$2.37  \n 6.85  \n$-  \n   \n\nGranted \n 1,144,116  \n$1.75  \n    \n    \n$1.49 \n\nExercised \n -  \n$-  \n    \n    \n   \n\nCancelled/Forfeited \n (17,253) \n$1.78  \n    \n    \n   \n\nOutstanding - December 31, 2025 \n 2,292,944  \n$2.06  \n 6.43  \n$-  \n   \n\nVested and Exercisable - December 31, 2025 \n 2,292,944  \n$2.06  \n 6.43  \n$-  \n   \n\nGranted \n -  \n$-  \n    \n    \n$- \n\nExercised \n -  \n$-  \n    \n    \n   \n\nCancelled/Forfeited \n (324,750) \n$2.51  \n    \n    \n   \n\nOutstanding - March 31, 2026 \n 1,968,194  \n$1.99  \n 6.22  \n$-  \n   \n\nVested and Exercisable - March 31, 2026 \n 1,968,194  \n$1.99  \n 6.22  \n$-  \n   \n\n \n\n64\n\n \n\n****** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n** **\n\n**Three\nMonths Ended March 31, 2026**\n\n** **\n\n**Stock\nOptions – Employee Terminations**\n\n \n\n324,750\noptions expired due to forfeiture, including 318,318 options held by our former Chief Financial Officer.\n\n \n\n**Year\nEnded December 31, 2025**\n\n** **\n\n**Stock\nOptions – Chief Executive Officer, Chief Financial Officer and Employees**\n\n \n\nThe\nCompany granted an aggregate of 1,144,116 fully vested, seven-year stock options for services rendered, allocated as follows: 227,336\nto its Chief Executive Officer (CEO), 143,979 to its Chief Financial Officer (CFO), and 772,801 to various employees. The aggregate grant-date\nfair value was $1,701,735, of which $552,286 related to the officers and $1,149,449 related to employees. All options have an exercise\nprice of $1.75 per share.\n\n \n\nThe\nfair value of these stock options was determined using the Black-Scholes option pricing model with the following inputs:\n\n Schedule of Fair Value of Stock Options\n\nExpected term \n 7 years \n\nExpected volatility \n 103%\n\nExpected dividends \n 0%\n\nRisk free interest rate \n 3.88%\n\n \n\n**Stock\nOptions – Employee Terminations**\n\n \n\n17,253\nstock options were cancelled in connection with employee terminations.\n\n \n\nStock-based\ncompensation expense related to stock options for the three months ended March 31, 2026 and 2025, was as follows:\n\nSchedule of Stock Based Compensation Expense\n\n \n\n **Three Months Ended March 31,**\n\n 2026  \n 2025 \n\n$-  \n$- \n\n****\n\n** **\n\n65\n\n \n\n** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n** **\n\n**Warrants**\n\n \n\nWarrant\nactivity for the three months ended March 31, 2026 and the year ended December 31, 2025 are summarized as follows:\n\n Schedule\nof Warrants Activity\n\n  \n   \n   \nWeighted  \n  \n\n  \n   \n   \nAverage  \n  \n\n  \n   \nWeighted  \nRemaining  \nAggregate \n\n  \nNumber of  \nAverage  \nContractual  \nIntrinsic \n\nWarrants \nWarrants  \nExercise Price  \nTerm (Years)  \nValue \n\nOutstanding - December 31, 2024 \n 96,000  \n$4.73  \n 0.37  \n$- \n\nVested and Exercisable - December 31, 2024 \n 96,000  \n$4.73  \n 0.37  \n$- \n\nGranted \n 730,000  \n$5.86  \n    \n   \n\nExercised \n -  \n$-  \n    \n   \n\nCancelled/Forfeited \n (96,000) \n$4.73  \n    \n   \n\nOutstanding - December 31, 2025 \n 730,000  \n$5.86  \n 4.30  \n$- \n\nVested and Exercisable - December 31, 2025 \n 730,000  \n$5.86  \n 4.30  \n$- \n\nGranted \n 435,000  \n$1.27  \n    \n   \n\nExercised \n -  \n$-  \n    \n   \n\nCancelled/Forfeited \n -  \n$-  \n    \n   \n\nOutstanding - March 31, 2026 \n 1,165,000  \n$4.14  \n 4.38  \n$- \n\nVested and Exercisable - March 31, 2026 \n 1,165,000  \n$4.14  \n 4.38  \n$- \n\n \n\n**Three\nMonths Ended March 31, 2026**\n\n \n\n**Warrants\nIssued with Convertible Debt**\n\n \n\nThe\nCompany issued 375,000 warrants in connection with convertible notes #7 and #8. See Notes 5 and 6.\n\n \n\n**Warrants\nIssued – Equity Offering**\n\n \n\nThe\nCompany issued 60,000 warrants in connection with a capital raise of $2,500,000. See above.\n\n \n\n66\n\n \n\n** **\n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\n**Note\n10 – Segment Information**\n\n** **\n\nOperating\nsegments are defined as components of an enterprise about which separate financial information is available and evaluated regularly by\nthe chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing performance.\nThe Company’s chief operating decision maker is its Chief Executive Officer.\n\n \n\nThe\nCompany evaluated the performance of its operating segments based on revenue and operating loss. All data below is prior to intercompany\neliminations.\n\n \n\nSegment\ninformation for the Company’s operations for the three months ended March 31, 2026 and 2025, are as follows:\n\n Schedule\nof Operating Segments\n\n  \n2026  \n2025 \n\n  \nFor the Three Months Ended March 31, \n\n  \n2026  \n2025 \n\n  \n   \n  \n\nRevenues \n    \n   \n\nMobile Virtual Network Operators \n$1,803,512  \n$2,285,823 \n\nPoint-of-Sale and Prepaid Services \n 14,180,471  \n 8,291,606 \n\nOther Corporate Overhead \n -  \n - \n\nTotal \n$15,983,983  \n$10,577,429 \n\nRevenues \n$15,983,983  \n$10,577,429 \n\n  \n    \n   \n\nCost of revenues \n    \n   \n\nMobile Virtual Network Operators \n$1,017,528  \n$5,189,618 \n\nPoint-of-Sale and Prepaid Services \n 22,629,899  \n 8,330,157 \n\nOther Corporate Overhead \n 34,005  \n - \n\nTotal \n$23,681,432  \n$13,519,775 \n\nCost of revenues \n$23,681,432  \n$13,519,775 \n\n  \n    \n   \n\nOperating expenses \n    \n   \n\nMobile Virtual Network Operators \n$71,620  \n$596,226 \n\nPoint-of-Sale and Prepaid Services \n 699,552  \n 906,996 \n\nOther Corporate Overhead \n 2,730,746  \n 3,134,334 \n\nTotal \n$3,501,918  \n$4,637,556 \n\nOperating expenses \n$3,501,918  \n$4,637,556 \n\n  \n    \n   \n\nIncome (loss) from operations \n    \n   \n\nMobile Virtual Network Operators \n$714,364  \n$(3,500,021)\n\nPoint-of-Sale and Prepaid Services \n (9,148,980) \n (945,547)\n\nOther Corporate Overhead \n (2,764,751) \n (3,134,334)\n\nTotal \n$(11,199,367) \n$(7,579,902)\n\nIncome (loss) from operations \n$(11,199,367) \n$(7,579,902)\n\n \n\n67\n\n \n\n \n\n**SURGEPAYS,\nINC. AND SUBSIDIARIES**\n\n**NOTES\nTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**\n\n**MARCH\n31, 2026 AND 2025**\n\n \n\nSegment\ninformation for the Company’s assets and liabilities at March 31, 2026 and December 31, 2025, are as follows:\n\n \n\n  \nMarch 31, 2026  \nDecember 31, 2025 \n\n  \n   \n  \n\nTotal Assets \n    \n   \n\nMobile Virtual Network Operators \n$5,088,425  \n$4,524,425 \n\nPoint-of-Sale and Prepaid Services \n 2,470,659  \n 2,231,645 \n\nOther Corporate Overhead \n 1,942,374  \n 1,759,776 \n\nTotal \n$9,501,458  \n$8,515,846 \n\nTotal assets \n$9,501,458  \n$8,515,846 \n\n  \n    \n   \n\nTotal Liabilities \n    \n   \n\nMobile Virtual Network Operators \n$1,760,758  \n$2,632,025 \n\nPoint-of-Sale and Prepaid Services \n 10,683,586  \n 2,768,490 \n\nOther Corporate Overhead \n 20,925,082  \n 18,518,150 \n\nTotal \n$33,369,426  \n$23,918,665 \n\nTotal liabilities \n$33,369,426  \n$23,918,665 \n\n \n\nAll\nintercompany accounts are separately presented above as both a component of the assets and liabilities. These amounts net to $0 in the\nCompany’s consolidated balance sheets.\n\n \n\n**Note\n11 – Subsequent Event**\n\n** **\n\nSubsequent\nto March 31, 2026, the Company had the following transactions:\n\n** **\n\n**Stock\nIssued for Services – Related Party**\n\n \n\nOn\nApril 1, 2026, the Company issued Mr. Cox 500,000 shares of common stock for services rendered, having a fair value of $360,000. See\nNote 8.\n\n \n\n68"}